Slight devaluation to keep foreign money in Singapore banks

Slight devaluation to keep foreign money in Singapore banks

Now I am scandalized by the Wall Street Journal just like the Singapore judges had been in the past.

Here I was, saying a silent prayer of thanks to the Monetary Authority of Singapore for not forgetting us poor folk in the hour of economic crisis and devaluing the Singapore dollar only slightly, by about 1.7 percent or so, so we can continue to eat our imported rice and chicken and practise daily hygiene with foreign toothpaste, soap and shampoo. (Almost nothing is made on this island except exports.)

The Wall Street Journal poured a bucket of cold water on this notion of a people-friendly devaluation.

The central bank did not further devalue the Singapore dollar for a different reason, it claims – to prevent foreign money from flowing out of the Singapore banks.

It won't help Singapore exporters compete with the Koreans and the Taiwanese – that requires a "monumental devaluation" of the Singapore dollar, says the article.

But it can help keep foreign money in Singapore banks.

Mark Cranfield writes in the Journal:

The central bank made a point of highlighting its view that there's "no reason for any undue weakening of the Singapore dollar."

In other words, Singapore isn't willing to step onto the slippery slope of competitive currency devaluation. By ceding that it can't control external demand for its goods, it's being as clear as it can that it doesn't want foreigners to lose confidence in the Singapore dollar and take their wealth elsewhere.

Financial services, led by a huge private banking and asset management industry, are crucial to the economy and confidence in the Singapore dollar underpins this structure. Funds under management in Singapore are around $800 billion, according to Monetary Authority data.

On top of the vast deposits lodged in Singapore by wealthy individuals, the island state has also become home to thousands of executives helping to provide those financial services.

The money these temporary residents spend in the local economy has become significant in the past five years, and a driver of the near doubling in residential property prices between 2006 and 2008.

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