Currency Wars continue to rage in the Far East

Today we travel to the other side of the world to review a small country which departed from a larger companion in 1965. But do not worry I am not looking at implications for Brexit today but noting the salvo fired this morning in the currency wars by the city-state of Singapore. Here is the statement from the Monetary Authority of Singapore or MAS.

 MAS will therefore set the rate of appreciation of the S$NEER policy band at zero percent, beginning 14 April 2016.

This replaced this.

 In October 2015, MAS kept the Singapore dollar nominal effective exchange rate (S$NEER) policy band on a modest and gradual appreciation path, but reduced its rate of appreciation slightly.

Which replaced this from January 2015.

MAS will therefore continue with the policy of a modest and gradual appreciation of the S$NEER policy band.  However, the slope of the policy band will be reduced.

These policy moves represent a clear change from the previous policy of currency appreciation. This started in 2012 and was an anti-inflation measure. However back in January 2015 the MAS was noting this.

The depreciation of the S$ against the broad-based strength of the US dollar was partly offset by the appreciation of the S$ against the Malaysian ringgit, euro, and Japanese yen. Thus, movements in the S$NEER have been relatively muted compared to bilateral S$ movements against the major currencies.

So they were seeing a feature of the times as we note that in addition to its domestic neighbour we see that 2 of the main currency depreciators are on the list and on the other side the strong US Dollar was on the list too. Even effective or trade weighted exchange rates can be an example of “you can’t always get what you want” to quote the Rolling Stones. The switch today seems to be an example of trying “to get what you need” as Singapore sets out a plan which no longer includes a rising currency.

At this point let me pose the question, how many countries these days will accept a rising currency and where does that leave those who want theirs to fall?

Why have they done this?

If we look at the outlook for inflation and growth we see this.

CPI-All Items inflation will remain negative throughout 2016……..According to the Advance Estimates released by the Ministry of Trade and Industry today, the Singapore economy registered 0% growth on a quarter-on-quarter seasonally adjusted annualised basis in Q1 2016, following the 6.2% expansion in Q4 2015.

Ouch! That is quite a growth slow down is it not? Anyway in a familiar theme it is all apparently Johnny Foreigner’s fault.

The outlook for the global economy has dimmed since October…….held down by sluggish external conditions….a less favourable external environment……subdued growth in Singapore’s major trading partners.

Can we continue all blaming each other? That is a clear central banking theme these days as they all sing along with Lilly Allen’s album “It’s not me it’s you” Also I note the use of the current central banking buzzword “vigilant”.

Also you may note that there is no change to interest-rates. I suspect that having reduced its deposit rate to 0% the MAS has – wisely in my view – decided not to plunge into the icy cold world of negative interest-rates, for now at least.

Oh and there was a time where mild disinflation and a growth rate expected to be between 1 and 3% in 2016 would have been seen as an economic nirvana. How times change….

Never believe anything until it is officially denied!

From the MAS

This is not a policy to depreciate the domestic currency,

From Bloomberg

Singapore’s dollar slid 1.2 percent to S$1.3667 to the U.S. currency as of 6:51 a.m. in London, the biggest drop since Aug. 11.

Actually it also took a few other currencies with it as the phrase “competitive devaluations” came back into use.

New Zealand’s dollar tumbled 1.2 percent to 68.38 U.S. cents, the ringgit declined 0.9 percent to 3.9088 per dollar and Indonesia’s rupiah weakened 0.4 percent to 13,210.

Actually the South Korean Won fell by as much too.

Japan and the Yen

There is quite an irony in the Yen being described as an appreciator and there will be much chuntering into their sake at both the Bank of Japan and the Ministry of Finance at this description. But we know that in spite of this weeks decline the Yen at 109.2 versus the US Dollar is up some 8.5% on a year ago. They are of course still “watching” it although today’s spokesman seems to have been smoking something strong.


Oh and as of this morning the Yen has strengthened against many of its neighbours as they follow the Singaporean Dollar lower. Indeed the Yen weakened after comments like this. From Bloomberg.

Even if Japan wants a weaker yen, any government action would be futile as “Abenomics is nearing its best-before date,” said Eisuke Sakakibara, in charge of intervention at the Ministry of Finance from 1997 to 1999. He said an expansion of Bank of Japan stimulus would only temporarily slow the yen’s gains to 100 by year-end.

He picked the turn nicely.


Here the foreign exchange news gets swamped by the US Dollar exchange rate but the official communique at the beginning of this month said this.

On March 31, 2016, the CFETS RMB exchange rate index closed at 98.14, losing 1.50 percent from the end of February;

The new effective exchange rate has fallen from 100.94 at the turn of the year to 97.64 now so China’s leaders will have been reflecting on a gradual depreciation so far in 2016. This will be welcome as they struggle to keep the dream alive.

However whilst a 0.8% fall against the Singaporean Dollar to 4.75 may not be a major factor in Chinese calculations the fact that other currencies have fallen with it changes things. We will have to wait and see how they respond to this. They will also be noting that the Euro has drifted lower like the Yen this week as the currency environment shows a hint of ch-ch-changes.


The MAS has decided that a lower currency is something to which they can sing along to with The Cars.

I guess you’re just what I needed
I needed someone to feed
I guess you’re just what I needed
I needed someone to bleed

The environment has changed as they usually only make such a move in response to a recession and further food for thought is provided by the fact that at the end of last year economic growth was at 6.2%. Is that a new lower bound?

As to other devaluation/depreciation efforts we wonder in terms of album titles, Who’s next?

Still I guess those selling property near me in Nine Elms and at Battersea Power Station will be very grateful if new Far Eastern buyers emerge ahead of any future competitive devaluations. According to the mood music from there they may be sorely needed……


Large losses seem to have been accompanied by a large pay rise for the Chief Executive and this response raised a smile.

think of how much bigger the loss could have been if he wasn’t being properly incentivised! (h/t @RealFinney)




11 thoughts on “Currency Wars continue to rage in the Far East

  1. ““Abenomics is nearing its best-before date,”

    I thought that was a few seconds after he uttered such drivel …..

    oh well back to the popcorn


    • Hi Forbin

      Yes if what we have had so far is the best bit of Abenomics then even the apologists will be struggling. Actually the debates I used to have with them on Twitter have dried up recently and I return to the subject regularly. Lower inflation has helped real wages but they want higher inflation! It is amazing what people will try and peddle..

      Speaking of inflation corn prices have been edging higher this week…

      As for the establishment that you discuss below they never seem to be held to account do they? As for the banks well the bad news just continues.

      BBC Breaking News
      Royal Bank of Scotland axing around 600 jobs in retail division and shutting 32 branches, trade union Unite says

  2. Can we continue all blaming each other?

    and the TBTF Banks , and for that matter , will continue to blame someone else for all the bad news and mistakes , whilst of course any good news/results can be attributed to their stunning skills ……

    because they can – who holds them to account these days ?

    Share holders? the big owners are on the same gravy train

    voters ? all the big parties are also on the gravy train

    it will all in tears , I know it ( shipboard computer , Heart of Gold )


  3. With reference to your comment on BP, I think that you will find that BP has to:
    1. Pay the going rate;
    2. Stop the talent going elsewhere.
    I believe that those are the two phrases most commonly trotted out.
    The only thing that you need to know about these salaries are:
    1. They are set by remuneration committees, which almost always include similarly rewarded people;
    2. These committees are advised by remuneration consultants, who don’t get re-employed if they point out that the CEO’s salary is too high;
    3. When recruiting a replacement, the headhunter is paid a percentage of the first-year salary, including bonus.
    As you can see, there are not many incentives here to cut pay…

    • Part of the anger was because the Shell CEO is on about 25% of the BP guy and has just had a large reduction in salary. (I wonder if there was a stealth payment somewhere?) That was on the BBC so dodgy provenance.

      You are exactly right and perhaps there comes a point where it is so outrageous that they have to stop? Other than that I can only think HHGTTG and “the first people up against the wall…” is actually starting to worry them.

  4. Thanks for this piece.If I can say Shaun,it’s a real strength of your blog that you discuss countries that rarely get mentioned in the Western MSM.

    That drop in growth is substantial.Does it bode ill for China?Have we seen the end of the run up in commodities?

    To quote myself,’Ouch!’.

    • Hi Dutch and thanks.

      The view of the MAS on the current slowdown is below.

      “The performance of the rest of manufacturing and the trade-related services sectors continued to be held down by sluggish external conditions. Re-export volumes registered sequential contraction on average over the first two months of 2016. There was also a pullback in financial services activity from the previous quarter, amid the slowdown in bank lending to the region.”

      Lets face it there was quite a reverse here from 6.2% to 0%. As to China we get this view.

      “China’s growth momentum is likely to moderate, as its services sector expansion is unlikely to be sufficiently strong to offset faltering industrial activity, amid supply gluts and weak global demand. ”

      As you can see they are not optimistic about China.

  5. Hi Shaun
    Great piece today, soon very few of
    the G20 nations will have positive IR’S.
    How about performance related pay
    for our leaders and betters!

    China Crisis

    And if I wish to stop it all.
    And if I wish to comfort the fall.
    It’s just wishful thinking.


    • Hi JRH

      I heard that song on the radio a few days ago and it still works after quite a few years. As to performance related pay for our leaders how would that work. I mean Christine Lagarde would not be able to dress so smartly for all the media backslapping if she was judged on IMF performance. In fact how many would be able to afford even the bus fare?

  6. An intriguing discussion is definitely worth
    comment. I think that you should publish more on this
    subject matter, it may not be a taboo subject but typically people do not speak about such subjects.

    To the next! All the best!!

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