Everything About the US Putting S’pore in ‘Currency Manipulation’ Watchlist Simplified for You

This morning, you might have seen headlines like this:

And if you’re an average Joe like BuffLord95, you’d go, “Wait, what? I thought we are BFF with the US? And how can we manipulate currency? I promise I didn’t draw anything funny on Yusof Ishak’s face since five years old…”

Well, fret not. We’re not going to see our currency’s value decrease; in fact, it’s the opposite of what’s happening.

Here are the facts simplified for you, because we’re your BFF.

First off…what is currency manipulation?

Currency Manipulation Explained for a 5-Year-Old

Let’s say you have many Huawei phones that’ll be sold at a fixed price of SGD$50 per piece.

And you have a friend called Sam from the US, who wants to buy the phone from you but he doesn’t have Singapore dollars. So in order to buy your phone, he would go to a money changer and change USD$36.15 to get SGD$50 based on a currency exchange rate of USD$1 = SGD$1.38.

Now, if the Singapore dollar gets stronger and goes to USD$1 = SGD$1.10, then he would need to pay more US dollars, this time at USD$45.45.

Of course, Sam would hope that the Singapore dollar is weak so that he won’t need to fork out more money, right? It’s like how we hope the Ringgit is weaker so we can buy more stuff in Malaysia.

But imagine that if your goal is just to get as many US dollars as possible from your phones. In fact, you’re hoping that the Singapore dollar is weak so that you’d have more US dollars, and you can use the US dollars to buy more things in the US.

In a nutshell, currency manipulation is an effort to make your currency weak so that you can get more foreign money.

But how do you do that, since you have no power to control Singapore dollars?

Simple: using Singapore dollars when it’s at USD$1 = SGD$1.38, you buy a lot of USDs. You’d have a lot of USDs in your “safe”, and so when Sam wants to buy the phone from you at USD$1 = SGD$1.10, you just do the exchange with your “safe” instead, which effectively makes the amount still at USD$1 = SGD$1.38.

Geddit so far? It’s like how some of us exchange LOTS of Ringgits when the Singapore dollars is strong even if we’re not going to Malaysia any time soon.

Multiply that by billions, and you’d get the idea.

But here’s the thing: it’s only beneficial for you if you sell many things to Sam. In this case, Sam is the US, you are Singapore and the Huawei phones are the exports.

In other words, currency manipulation is only beneficial if you’re exporting a lot of goods overseas; which, if you think about it, isn’t exactly what Singapore is doing, since we depend a lot on imports.

In addition, currency manipulation would also cause the dollar to be weakened, so it’s not exactly a good idea.

So, what happened?

Semi-Annual Report by US Treasury Department

Today, it’s revealed that the US Treasury Department has reviewed the policies of their 21 major trading partners (i.e. countries), and none of them is accused of currency manipulation.

However, nine countries were on a watchlist that “merit close attention to their currency practices and macroeconomic policies.”

They are China, Malaysia, Germany, Ireland, Italy, Japan, South Korea, Vietnam and Singapore.

The report stated, “Singapore runs one of the largest current account surpluses in the world as a share of GDP at 17.9 per cent in 2018. Notwithstanding this large external surplus with the rest of the world, Singapore has consistently run a bilateral goods trade deficit with the United States, which in 2018 totalled US$6 billion.”

Simply put, Sam told you that you got a lot of USDs in your “safe” and Sam buys a lot from you, so you’re in the list.

Singapore MAS Responded

Of course, Singapore has to respond.

In chimology language, MAS said, “MAS does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus. A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS’ price stability objective.”

They added chimly, “In its early years of development, Singapore ran persistently large current account deficits averaging close to 10 per cent of GDP between 1965-84, when its investment needs were greater than available saving… As the economy matured, its investment needs tapering off, while national saving rose. Consequently, the current account turned into a surplus position.”

Basically, using the earlier example, you told Sam that you don’t chut that kind of pattern because you don’t want your Singapore dollars to weaken. And that you used to have USDs in the past for investment, and that even when you don’t need them now, you still hold on to those USDs, which you might just spend away soon.

Well, now you know.

But anyway, there’s no need for concern; it’s only on a watchlist. It’s not like we’re on the Entity List, like a certain phone brand.