Why Singapore Dollars have NO CHOICE but to continually Appreciate in value
Reason 1: Few Singaporeans buy cars or houses regardless of how high or low the interest rate is.
- This is because cars and private homes are prohibitively expensive for most Singaporeans and the majority of them don't buy cars and take public transport instead.
- the Singapore govt also provides HDB flats at 99 year leases to its population. Currently 83% of Singaporeans stay in these HDB flats So a very small percentage of Singaporeans actually have the need or can afford to buy private homes.
Reason 2: Singapore is an International Financial Center and thus unwilling to pay high interest rates
- Many foreigners and companies park their money in Singapore and liquidity is high due to strict bank privacy rules as well as lack of restrictions in movement of funds. If interest rates are low, the banks in Singapore don't need to pay as much interest to the depositers.
- As other nations relax bank secrecy, the island nation of Singapore has embraced it and is expected to surpass Switzerland as a safe and secret haven for money from throughout the world. This inflow from individuals and corporates wishing to hide and stash their money doesn't mind being paid a low interest rate as long as secrecy and privacy is assured and has further fuelled demand for Singapore Dollars and further pushes up the Singapore Dollar.
- Since cheap money liquidity is high, if local Singapore businesses needs to borrow money, they can borrow at cheap interest rates. The current Benchmark interet rate for Singapore is 0.05% vs 3% in Malaysia
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Also, high foreign exchange benefits Singapore and does not harm Singapore competitiveness (at least for now):
1. Singapore has no primary resource bases to protect.
- unlike Malaysia which has petroleum and palm oil and timber and agriculture and agroculture industries which are sensitive to high exchange rates, Singapore has none.
2. Singapore's manufactured exports have inputs that are imported with very little local material content
- Whatever Singapore produces and exports, the raw material is imported so that even though a high Singapore dollar makes their exports expensive but the imported raw materials become cheap and hence Singapore can afford to reduce their export price or price in a third-country currency such as US$.
- this also makes the Singapore labor costs expensive but the high Singapore Dollar also attracts more imported and cheaper labour (such as from Malaysia) to go work in Singapore. This new foreign labour drive down the labour cost and wages. (this is one of the reasons why local Singaporeans citizens are only 60% of total population and why they are angry at their govt)
3. Appreciating currency policy attracts foreign funds
- Since Singapore is an international financial hub, although Singapore banks pays very low deposit interest, foreigners know that their value of money in Singapore will grow as the Singapore dollar appreciates. This appreciating currency acts like a pseudo-interest rate for the foreigners's deposit. Singapore's MAS makes their stand very clear to these foreigners by publicly announcing that they will continue to pursue a appreciating currency policy.
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2nd WARNING: Please remember that it is Singapore Dollar that keeps appreciating and not Malaysian Ringgit that continues to weaken. Actually, over the past 10 years, other than when compared to the Sing Dollar, the RM has done well against the world's major trading currencies such as US$, British Pound, Euro and Japanese Yen.
Source:
https://www.facebook.com/BukanZombie/posts/191071104406001
Disclaimer: The above may not be 100% accurate but it does explained what we are currently seeing and may not last forever. It is for you to decide when you need to change your currency and where to park your money for a win win situation. Wishing all a Happy and Prosperous Year ahead.
Not sure if $RM1 includes medicine.
