Singapore, Malaysia and Vietnam Met Two of the Three Criteria

This week, the US Department of the Treasury Office of International Affairs released its semi-annual Report to Congress on Macroeconomic and Foreign Exchange Policies between US major trading partners, where the report listed nine countries that will be included in its Monitoring List, which merit the US close attention to their currency practices and macroeconomic policies. Besides, China, Japan, Korea, Germany Italy and Ireland, three Asean countries were included in the Monitoring List, these are Singapore, Malaysia and Vietnam.

The report guided that the US Treasury is expanding the number of trading partners, covered in the report as well as adjusting the thresholds for the three criteria, to be possibly labelled as a ‘currency manipulator’. The three criteria are i) a significant bilateral trade surplus with the US is at least US$20 billion, ii) current account surplus of at least 2% of GDP, and iii) persistent one-sided intervention on foreign currency in at least 6 out of 12 months and totalling at least 2% of the economy’s GDP in a 12 month period.

Since April 2016, the US Treasury has been publishing the semi-annual reports, and for the first time, Singapore was added to the watchlist, as the country met two of the three criteria, i.e. large current surplus and persistent, one-sided intervention in the foreign exchange market. As highlighted in the US Treasury report, in 2018, Singapore’s current account surplus as a percentage of GDP was the largest among all the countries in the list at 17.9% of GDP (16.4% in 2017) due to the country’s high savings rate averaging 46% of GDP since 2011, partly on the back of the compulsory comprehensive savings scheme saving and modest social safety spending. In response to the US Treasury report, Monetary Authority of Singapore (MAS) guided that it “does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus”. Going forward, MAS expects the country’s current account surplus to narrow amid expectation of raising affluence which will in turn boost consumption and lower savings. US Treasury had also pointed out that Singapore conducted net foreign exchange purchases of at least US$17bn (4.6% of GDP) in 2018 as MAS manages the Singapore dollar nominal effective exchange rate (S$NEER) within an undisclosed trading band to ensure medium-term price stability. MAS further elaborated that an intentional weakening of the Singapore dollar would go against its price stability objective as it would result in faster inflation.

As for Vietnam, the two criteria which the country met was the large goods surplus and current account surplus. Vietnam’s good trade surplus with the US amounted to US$40bn in 2018 (US$38bn in 2017).

Source: Affin Hwang Research - 31 May 2019