ECONOMYNEXT – The Monetary Authority of Singapore, which operates on currency board principles, said it would appreciate the currency further from January 2022, after inflation hit 4.0% in December 2022 as Sri Lanka strives to maintain a peg of 200 against the US dollar with a 12% increase in consumer prices.

The MAS does not print money to impose an artificial interest rate and blow up the currency, adapt to supply shocks saying they are a “cost push”, but appreciates or depreciates its currency to counter inflation, mainly generated by central banks with reserve currencies.

MAS said inflation is expected to rise due to “the rapid buildup of external and domestic cost pressures.”

“MAS will therefore slightly increase the appreciation rate of the S$NEER political band,” MAS said in its January policy statement.

“The width of the political band and the level at which it is centered will be unchanged. This decision builds on the precautionary move to an appreciation position in October 2021 and is appropriate to ensure price stability over the medium term.

The MAS tightened its policy in January ahead of its usual policy meeting in April.

The MAS changed from an orthodox currency board with a fixed exchange rate to an appreciating currency after the US Fed started generating excessive inflation.

But now it has “floating” exchange rates, but fully backed by foreign exchange reserves and without a policy rate.

The monetary strategy was devised by former finance minister and economic architect of Singapore Goh Keng Swee.

Since the breakup of the Bretton Woods soft peg system due to US money printing, the Singapore dollar has appreciated by around 3.0 to 1.3 against the US dollar.

During the period, Sri Lanka caused the currency to fall from 5.9 to 201 to the US dollar, in part due to “competitive exchange rate” dogma creating social unrest.

Sri Lanka is struggling to maintain a parity of 200 against the US dollar, due to a fixed policy rate which was raised from 6.0 to 6.5% in January. (Colombo/January 29, 2021)

About The Author

Related Posts