Friday 08 Oct 2021 | 08:12 | SYDNEY
Friday 08 Oct 2021 | 08:12 | SYDNEY

GFC: Singapore slung (2)


Malcolm Cook

31 March 2009 16:08

A couple of weeks ago, while in Singapore, I wrote a post about how Singapore is getting 'slung' by the GFC. If a panel of economists is correct, Singapore’s responses to its greatest economic challenge as an independent state may extend to currency depreciation against the global reserve currency, (no not SDRs), the US dollar.

Before the financial crisis span out of control last September, Singapore pursued policy of slow currency appreciation against the dollar in line with Singapore’s higher growth rate and economic restructuring policy. Last September, it shifted to a policy of supporting a steady value against the US dollar, even when the US dollar appreciated sharply. Now, many expect Singapore’s monetary authorities to allow the Singapore dollar to depreciate against the dollar to regain some of its lost competitiveness.

If Singapore does take this step, it will be interesting to watch how other regional trading powers with managed currencies respond. China, a much larger and less exposed economy, has followed a similar approach for similar reasons to Singapore shifting from a policy supporting the gradual appreciation of the yuan against the dollar to one supporting a steady yuan-dollar exchange rate last July. There clearly are pressures emanating from China’s battered export sectors for a competitive depreciation but so far there are no signs that depreciation is on the cards.

China, to its credit, held the line on its yuan peg (against the US dollar) exchange rate policy during the Asian financial crisis, an enlightened decision that helped that crisis from spiralling even further à la 1930s 'beggar thy neighbour' competitive depreciation spiral that many of us living in the Southeast Asia feared.