Devaluation of S$ as possible Monetary Tool?

Goh Meng Seng · Feb 14, 2009

There has been talks in the market for quite a while about the possibility of PAP government and MAS using S$ devaluation as a monetary tool to keep us competitive while the injection of new money supply boosting local demand.

It is said that a 20% or even 30% devaluation would be a good move at this moment when oil and commodity prices are low. Anyone here has any concrete information on this one?

Goh Meng Seng

yellow_people · Feb 14, 2009

Goh Meng Seng said:
There has been talks in the market for quite a while about the possibility of PAP government and MAS using S$ devaluation as a monetary tool to keep us competitive while the injection of new money supply boosting local demand.

It is said that a 20% or even 30% devaluation would be a good move at this moment when oil and commodity prices are low. Anyone here has any concrete information on this one?

Goh Meng Seng

This are just rumors started by disgruntled ex WP and WP members. 20% to 30% devaluation will spell disaster for an economy that is reliant on imports - food, water, fuel etc by 20 to 30%.

If you are going to argue that it will help the economy by keeping companies and jobs here, you are beating a dead horse. Most of the jobs are manufacturing jobs which can be performed more cost efficiently elsewhere and even if they were retained will go to foreigners.

I can't believe I actually voted for a moron like you in 2006.

lky_hearse · Feb 14, 2009

Goh Meng Seng said:
There has been talks in the market for quite a while about the possibility of PAP government and MAS using S$ devaluation as a monetary tool to keep us competitive while the injection of new money supply boosting local demand.

It is said that a 20% or even 30% devaluation would be a good move at this moment when oil and commodity prices are low. Anyone here has any concrete information on this one?

Goh Meng Seng

It had always WORKED WELL for me! Just a bit of inflations that's all!

What's the problem?

johnny333 · Feb 18, 2009

lky_hearse said:
It had always WORKED WELL for me! Just a bit of inflations that's all!

What's the problem?

You may be right

Mugabe could have been in Spore at the invitation of the PAP to explore his inflationary policies :biggrin:

Goh Meng Seng · Feb 18, 2009

yellow_people said:
This are just rumors started by disgruntled ex WP and WP members. 20% to 30% devaluation will spell disaster for an economy that is reliant on imports - food, water, fuel etc by 20 to 30%.

If you are going to argue that it will help the economy by keeping companies and jobs here, you are beating a dead horse. Most of the jobs are manufacturing jobs which can be performed more cost efficiently elsewhere and even if they were retained will go to foreigners.

I can't believe I actually voted for a moron like you in 2006.

I am sorry to disappoint you but I am not the one who suggested this devaluation. MAS will be the one who will executed the devaluation.

Economically, it is a viable Monetary tool in this conditions. This is of course, from the Economics Textbook. I will talk about it later.

Goh Meng Seng

popdod · Feb 18, 2009

lky_hearse said:
It had always WORKED WELL for me! Just a bit of inflations that's all!

What's the problem?

Yeah!
Thatz the way man!

:p :biggrin:

:p

scroobal · Feb 18, 2009

Goh Meng Seng said:
There has been talks in the market for quite a while about the possibility of PAP government and MAS using S$ devaluation as a monetary tool to keep us competitive while the injection of new money supply boosting local demand.

It is said that a 20% or even 30% devaluation would be a good move at this moment when oil and commodity prices are low. Anyone here has any concrete information on this one?

Goh Meng Seng

No...........

The_Latest_H · Feb 18, 2009

I have put up an Economist link -a while back- warning of the consequences of believing that a mere currency devaluation is good enough to spark overseas demand.

First of all, even if there's a currency devaluation, Americans remain poor, and feeling jittery about their jobs and their wages. Even if the SGD is devaluated, what makes the MAS believe that Americans will suddenly think they can start buying electronic stuff made-in-Singapore again?

http://www.economist.com/finance/displaystory.cfm?story_id=13022067

http://www.economist.com/finance/displaystory.cfm?story_id=12998254

This recession, is in the end, no ordinary crisis, and a currency devaluation will only hurt the spending power of ordinary S'poreans, and especially on daily items like groceries. A weakened currency also usually benefits foreign exporters, and hurt importers, and therefore local customers.

I think its a useless action and its like putting a band aid on an artery that has been severed to the bone. If the MAS wants to start the ball rolling on economical recovery, it should start advising the government to lower the costs of businesses and of living for ordinary people, by cutting taxes and giving more help to struggling families, and by advising GIC and Temasek to start withdrawing from the local private sector.

It means they will lose political control, but in return what you have is a more stable Singapore economy, and who says one cannot continue to win power if you can at least prove your party is able to manage the country economically?

yansen84 · Feb 19, 2009

Goh Meng Seng said:
There has been talks in the market for quite a while about the possibility of PAP government and MAS using S$ devaluation as a monetary tool to keep us competitive while the injection of new money supply boosting local demand.

It is said that a 20% or even 30% devaluation would be a good move at this moment when oil and commodity prices are low. Anyone here has any concrete information on this one?

Goh Meng Seng

I do not concur with such a strategy. Gains will be limited by rising protectionism in our export economies, while imported inflation will rear its ugly head. Having said that I'll be hoping for such a move on personal benefit grounds.

banova888 · Feb 19, 2009

yellow_people said:
This are just rumors started by disgruntled ex WP and WP members. 20% to 30% devaluation will spell disaster for an economy that is reliant on imports - food, water, fuel etc by 20 to 30%.

If you are going to argue that it will help the economy by keeping companies and jobs here, you are beating a dead horse. Most of the jobs are manufacturing jobs which can be performed more cost efficiently elsewhere and even if they were retained will go to foreigners.

I can't believe I actually voted for a moron like you in 2006.

I couldn't have said it any better but I will try.

Singapore has no natural resources besides taxes. All our manufactured products need raw materials which are bought for and paid for by US dollars. If the Singapore dollar is devalued, not only would our imports increase, our billion dollar reserves would also decrease in value.

Care to tell me which peanut brain brought up this idea?

banova888 · Feb 19, 2009

lky_hearse said:
It had always WORKED WELL for me! Just a bit of inflations that's all!

What's the problem?

Are you drunk? We are talking about Singapore and you post a photo of your father.

funglung · Feb 19, 2009

Sinkies must organise themselves

Show that they got balls and can stand up to LKY intimidation.

Big money at stake.

Already 400++ billions got sucked and bled by LKY into his Temasick and GIC

EVEN IF NO ELECTIONS, SINKIES MUST SPEAK WITH ALL THEIR FRIENDS AND ALL THEY KNOW

STAND UP TO THAT BASTARD LKY AND PAP BLOODSUCKERS

STAND WITH ALL THOSE THAT FIGHT BASTARD LKY

OR STAND UP YOURSELF IN YOUR CONSTITUENCY

DONT BE BULLIED BY THAT FUCKING COWARD LKY USING HIS CORRUPT KANGAROO COURTS

glock · Feb 19, 2009

our reserves not in singapore dollar but in foreign currencey right ? so if devalue then wont the "singapore dollar value" go up ??

banova888 said:
I couldn't have said it any better but I will try.

Singapore has no natural resources besides taxes. All our manufactured products need raw materials which are bought for and paid for by US dollars. If the Singapore dollar is devalued, not only would our imports increase, our billion dollar reserves would also decrease in value.

Care to tell me which peanut brain brought up this idea?

londontrader · Feb 19, 2009

Goh Meng Seng said:
There has been talks in the market for quite a while about the possibility of PAP government and MAS using S$ devaluation as a monetary tool to keep us competitive while the injection of new money supply boosting local demand.

It is said that a 20% or even 30% devaluation would be a good move at this moment when oil and commodity prices are low. Anyone here has any concrete information on this one?

Goh Meng Seng

Dear GMS,

Talk of SGD depreciation has been circulating around trading floors since 2008. Many of us are wondering why the MAS is still on a NEUTRAL stance with inflation looking very much like last year's war. The general consensus is that MAS will FINALLY move towards an ACCOMMODATIVE stance at their April Policy Review. Some are predicting that MAS will re-center the SGD band. All of us have heard this rumour that the SGD will devalue by 20-30% very soon. If you pull up a current USDSGD chart, you will realise that no serious FX professional actually believes this will happen.

Why is a 20-30% devaluation such a bad idea?

1. It will trigger successive rounds of "beggar thy neighbour" devaluations. This actually happened in the aftermath of the Great Depression because nations believed that one could devalue your way out of trouble. In the end, everyone just became poorer!

2. Singapore's exports have a very high import content (something like 60%). This will negate the initial positive impact of a weaker exchange rate.

3. It will be inflationary even with falling raw material prices. This inflation will cause massive asset destruction (remember your CPF savings denominated in SGD).

4. What is really important for Singapore's trade competitveness over time is the stability of SGD ie. confidence in our currency.

5. Singapore is a major financial centre. Any hint of such a devaluation (from a credible source) will trigger massive capital flight!

6. A steep SGD depreciation will sharply erode the purchasing power of wages. This leads to a wage price spiral as workers push for higher nominal wages in order to compensate this loss in real value.

7. It is for these reasons that MAS doesn't use the exchange rate as an instrument to promote export competitiveness. The SGD is managed in order to maintain low inflation and exchange rate stability.

8. So what about our export competitiveness?

The govt prefers to use direct measures to reduce our real exchange rate ie. supply-side policies. These policies aim to reduce business costs, improve labour productivity and enhance capabilities ie. sounds like the recent budget measures right?

In Conclusion

My belief is that MAS will move to an Accommodative stance in April, which will be in line with lower inflation expectations. This should allow for a gradual and modest depreciation of the SGD.

Alternatively, MAS could re-centre the SGD band (Not by 20-30%!!!) lower and keep the zero appreciation path.

My 2 cents worth
cheers

Hope · Feb 19, 2009

Goh Meng Seng said:
I am sorry to disappoint you but I am not the one who suggested this devaluation. MAS will be the one who will executed the devaluation.

Economically, it is a viable Monetary tool in this conditions. This is of course, from the Economics Textbook. I will talk about it later.

Goh Meng Seng

Of course,Singapore does not believe in a interest rate/money supply management,the only tool left is exchange rate.

I have no doubt that the easing has started with active encouragement/management by MAS,I expect US$1 to hiit S$2 by year end.

LKY must be danm jealous that Uncle Sam is bankruppt,but US$ is stronegest in the world now,whilst Singapore only lost 40% of its reserve.

That is why PAP does not get it,USA has a strong private sector,it would come back,Singapore ahs a strong but incompetent PAP,which has zero expertise in fund management.Slowly but surely,many Spore citizenbs would begin to realise how foolish to trust PAP so much,juts like in all other dictators ruled nations before us.

Hope · Feb 19, 2009

londontrader said:
Dear GMS,

Talk of SGD depreciation has been circulating around trading floors since 2008. Many of us are wondering why the MAS is still on a NEUTRAL stance with inflation looking very much like last year's war. The general consensus is that MAS will FINALLY move towards an ACCOMMODATIVE stance at their April Policy Review. Some are predicting that MAS will re-center the SGD band. All of us have heard this rumour that the SGD will devalue by 20-30% very soon. If you pull up a current USDSGD chart, you will realise that no serious FX professional actually believes this will happen.

Why is a 20-30% devaluation such a bad idea?

1. It will trigger successive rounds of "beggar thy neighbour" devaluations. This actually happened in the aftermath of the Great Depression because nations believed that one could devalue your way out of trouble. In the end, everyone just became poorer!

2. Singapore's exports have a very high import content (something like 60%). This will negate the initial positive impact of a weaker exchange rate.

3. It will be inflationary even with falling raw material prices. This inflation will cause massive asset destruction (remember your CPF savings denominated in SGD).

4. What is really important for Singapore's trade competitveness over time is the stability of SGD ie. confidence in our currency.

5. Singapore is a major financial centre. Any hint of such a devaluation (from a credible source) will trigger massive capital flight!

6. A steep SGD depreciation will sharply erode the purchasing power of wages. This leads to a wage price spiral as workers push for higher nominal wages in order to compensate this loss in real value.

7. It is for these reasons that MAS doesn't use the exchange rate as an instrument to promote export competitiveness. The SGD is managed in order to maintain low inflation and exchange rate stability.

8. So what about our export competitiveness?

The govt prefers to use direct measures to reduce our real exchange rate ie. supply-side policies. These policies aim to reduce business costs, improve labour productivity and enhance capabilities ie. sounds like the recent budget measures right?

In Conclusion

My belief is that MAS will move to an Accommodative stance in April, which will be in line with lower inflation expectations. This should allow for a gradual and modest depreciation of the SGD.

Alternatively, MAS could re-centre the SGD band (Not by 20-30%!!!) lower and keep the zero appreciation path.

My 2 cents worth
cheers

Thank you for yr anlaysis.

But you have not factored in the 41% loss by GIC as confirmed by Minsiter Lim in parliament recently.

What is GIC?GIC is a global investment management company established in 1981 to manage Singapore's foreign reserves.

So by Tony Tan own admission in Davos,the totoal portfolio value was $300 billion,loss of 41% translates to US$123 billion,our offical foreign reserve was US$167 billion,according to latest available MAS figure.

There is no way for S$ to move but down.Personally I keep min amoun in S$,I operate US$,Eur account,RM account,Australian $ account.US$ has moved fr around 1.4 to 1.53,about 9% movement.

To me,the surest bet is A$,the currency has no way to go but up!-

Conan the Barbarian · Feb 19, 2009

londontrader said:
Dear GMS,

Alternatively, MAS could re-centre the SGD band (Not by 20-30%!!!) lower and keep the zero appreciation path.

My 2 cents worth
cheers

A 20% lower band merely translates to a rate of S$1.83 to 1 USD.
Its is within acceptable range as we have visited this level during
the Asian Currency Crisis.

chewed · Feb 19, 2009

yellow_people said:
This are just rumors started by disgruntled ex WP and WP members. 20% to 30% devaluation will spell disaster for an economy that is reliant on imports - food, water, fuel etc by 20 to 30%.
...
I can't believe I actually voted for a moron like you in 2006.

you want to take a cheap shot at GMS, do it more skillfully lah. This rumor has been circulating around for the 6 months, among the financial circle.

only the truely ignorant will say it's started by ....

chewed · Feb 19, 2009

banova888 said:
I couldn't have said it any better but I will try.

Singapore has no natural resources besides taxes. All our manufactured products need raw materials which are bought for and paid for by US dollars. If the Singapore dollar is devalued, not only would our imports increase, our billion dollar reserves would also decrease in value.

Care to tell me which peanut brain brought up this idea?

Yes. Whoever that suggested this "idea" obviously have no clue. Their whole rational is that by making SG$ cheaper, it will be more attractive to FDI. But of course the same clown forgotten that we import everything base on US$.

end results? our export might still cost the same to others but we are paying a high price for expecting it, not to mention the inflation that comes with it.

londontrader · Feb 20, 2009

Hope said:
Thank you for yr anlaysis.

But you have not factored in the 41% loss by GIC as confirmed by Minsiter Lim in parliament recently.

What is GIC?GIC is a global investment management company established in 1981 to manage Singapore's foreign reserves.

So by Tony Tan own admission in Davos,the totoal portfolio value was $300 billion,loss of 41% translates to US$123 billion,our offical foreign reserve was US$167 billion,according to latest available MAS figure.

There is no way for S$ to move but down.Personally I keep min amoun in S$,I operate US$,Eur account,RM account,Australian $ account.US$ has moved fr around 1.4 to 1.53,about 9% movement.

To me,the surest bet is A$,the currency has no way to go but up!-

Dear Hope,

Just a few comments:

1. The GIC situation is not as clear as you imply. Did they really lose 41% (ie. lim hwee hua's slip in parliament)? If so, 41% of what? Is it $100bn, $300bn or $500bn (all estimates that have emerged over the years)? What about the alternative report by Dow Jones that GIC lost $50bn? When the level of disclosure is ZERO, all we have is speculation.

2. It is useful to define what actually constitutes the RESERVES available to Singapore:

a. There is the Official Foreign Reserves (OFR) managed by the MAS which totals slightly over US$167bn at the end of Jan 2009. The size of the OFR is an important indicator of Singapore's financial standing and provides the
MAS the capacity to intervene in the FX market in support of the SGD.

b. There are the reserves (let's call them Excess Foreign Reserves) managed by GIC and Temasek. The Temasek figure is US$127bn at the end of Nov 2008 and the GIC figure is kept secret but thought to be well in excess of US$300bn.

3. If you monitor the evolution of the OFR over time, the current level is more than sufficient to provide confidence in the SGD, even with a supposed 41% loss in GIC's assets. That explains the absence of a speculative attack on the SGD after Temasek's large loss was confirmed and GIC's loss was implied.

4. I do agree with you that USDSGD is heading up in the medium term (ie. SGD depreciating). But this has little to do with the losses in GIC and Temasek. It has a lot to do with the increasingly more accommodative MAS stance and the movements within the trade weighted basket of currencies.

Hope this provides some clarification

cheers

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