Jan 28, 2011
ACCORDING to the Monetary Authority of Singapore's (MAS) website, our total official foreign reserves have ballooned by more than 94 per cent from US$116 billion in 2005 to about US$226 billion (S$289 billion) last year.
This may look good to most people, but I see it as a dramatic intervention by MAS to weaken the real value of the Singdollar over a short span of five years by buying up freshly printed money of foreign governments.
I prefer a strong Singdollar. Whenever a foreign government debases its currency, it affects our foreign reserve holding. At best, a large forex reserve gives our government a lot more money and enables our exporters to sell into markets chronically stricken with trade deficits. However, these are not necessarily a good thing.
A realistically strong Singdollar allows better distribution of wealth as it does not dilute the savings and earnings of Singaporeans. It keeps interest rates realistic, higher than the current Singapore Interbank Offered Rate which is near zero, and dampens speculation and over-borrowing. This keeps real inflation down and housing prices affordable. It also encourages saving and spending within one's means.
I suggest MAS sell off some foreign reserves for tangibles such as gold and silver, and allow the Singdollar to strengthen naturally. Stop subsidising the currencies of nations with chronic trade deficits at the expense of the Singdollar.
Our export sectors can benefit from significantly lower imported input costs and still remain internationally competitive.
[First of all, just because the value of the foreign reserves is totalled and valued in US$, doesn't mean that it IS held all and only as US$. Most country hold a basket of foreign currency including gold.
Second, currencies that are considered as foreign reserves are not so easily "debased". The US$ can fall over time, and it has because it has been printing money to finance its debt, but it is still holding its value.
Third, foreign reserves may be used to defend a country's forex rate, but it is not the sole determinant of the strength and stability of the S$.
Fourth, on what basis do you say that our export sectors can benefit significantly from lower import costs and still remain competitive internationally? What figures do you have to support that conclusion? A rising S$ would mean our exports will be less competitive to the EU, China, Malaysia and US. It is for the same reason China is keeping its yuan low and buying US$ and US debt. Is this sustainable? Maybe not. Alternatives? No easy answer.
Finally, buying and holding gold is not the best answer. If it is, every country would only hold gold as reserves. Why don't they?]