SINGAPORE (May 29): The Monetary Authority of Singapore (MAS) has said it does not manipulate its currency for export advantage, in response to media queries on the US Treasury Report on Macroeconomic and Foreign Exchange Policies released today.

The US Treasury on May 29 added Singapore, Malaysia and Vietnam to a watchlist for exchange rate and macroeconomic policy.

See: Why Singapore, Malaysia, Vietnam were added to US currency watchlist

According to the Treasury, Singapore made the list because of its large current account surplus and net foreign currency purchases of at least US$17 billion ($23.48 billion) in 2018 – equivalent to 4.6% of GDP.

However, the central bank argued that Singapore’s current account balance should be viewed in context.

“In its early years of development, Singapore ran persistently large current account deficits averaging close to 10% of GDP between 1965-84, when its investment needs were greater than available saving,” MAS said in a statement. “As the economy matured, its investment needs tapered off, while national saving rose. Consequently, the current account turned into a surplus position.”

MAS reiterated that Singapore’s monetary policy framework, which is centred on the exchange rate, has always been aimed at ensuring medium-term price stability – and will continue to do so.

It stressed that it does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus.

“A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS’ price stability objective,” MAS said.

MAS manages the Singapore dollar nominal effective exchange rate (S$NEER) within a policy band, just as other central banks conduct monetary policy by targeting interest rates. Whether they target the exchange rate or the interest rate, MAS pointed out that central banks aim to keep consumer price inflation low and stable as their primary mandate.

“MAS does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus. A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS’ price stability objective,” MAS added.

However, the central bank said that, together with rising affluence that will raise consumption, Singapore’s current account surplus will likely be reduced when public and private savings are drawn down for the needs of an ageing population.

Some observers have dismissed the Treasury’s move as politically-motivated, amid rising US-China trade tensions.

The fact that Singapore, Vietnam and Malaysia are added to the list "indicates the US is continuing to pressure China," Kim Hwan, an economist at NH Investment & Securities in Seoul, told Bloomberg. "These countries are all Southeast Asian countries that have close economic correlations with China."