We’ve all seen the seemingly alarming news that MAS is setting the Singdollar to zero appreciation – but what does that really mean for everyone?
For the average Joe, hearing that our currency has been set on a path of zero appreciation seems scary at first glance. Fret not, though – we’re here to help you make a little more sense of the situation.
In the midst of this global pandemic, the Monetary Authority of Singapore (MAS) has made an unprecedented decision to both reduce the slope of our policy band to zero percent appreciation, and adjusted downwards where the band is centred.
What on Earth is The Slope? How Does it Affect Our Currency?
To set the stage, a key piece of information is this: the Singdollar value is set by the MAS. They do this by setting a limit on how high the Singdollar can rise, and how low it can fall in relation to a basket of different currencies, which MAS doesn’t disclose. This range is referred to as the “slope”.
You know those old school DVD screensavers, where a little DVD icon bounces around the screen? The slope is something like that.
Imagine the Singdollar as the DVD icon, and the slope is the space it has to bounce around. The larger the space, the more room the Singdollar has to increase or decrease in value on a day-to-day basis. By adjusting the slope, what MAS has done is set a limit on how high the Sing dollar can rise and fall in comparison to other currencies.
MAS accomplishes this by utilising their foreign currency reserves to buy or sell the Singdollar, and in this way, control the value of our currency.
When making this decision, MAS uses what is known as the Singapore Dollar Nominal Effective Exchange Rate or $SNEER. While other countries use interest rates as their main policy tool, Singapore’s small, open and trade dependent economy means it makes more sense for us to use our exchange rate as a policy tool to achieve economic objectives.
According to Today Online, almost 40 cents of every dollar spent domestically go back to the import of goods and services. The exchange rate of the Singdollar is thus a lot more relevant than interest rates, and a more effective policy tool for the MAS to use.
Why is MAS Doing This?
So the Sing Dollar can’t rise at all, and now it can fall a little further than it normally could. While this seems like bad news, it’s a precautionary measure that we have to take as we head into a recession.
While importing goods and services from other countries might be less of a bargain than it used to be, this makes Singapore’s goods and services cheaper for our trade partners to purchase. MAS is essentially ensuring that we make it through this recession by making whatever we manufacture, and services that we provide cheaper for other countries to buy.
If the Singdollar is allowed to continue rising upwards of the slope, that means that the Singdollar has higher value when exchanged with other currencies. Allowing this to occur may discourage overseas buyers from purchasing our goods and services, making our economy less competitive. Since our economy depends heavily on open trade, that would be a huge problem if left unchecked.
How Does This Affect Me?
If you’re looking to buy products online which are priced in foreign currency, you’re unlikely to get any spectacularly good exchange rates. This is because, like we’ve mentioned earlier, MAS is allowing the Singdollar to fall a little further than usual.
If you would like to buy something online in a foreign currency, we’d still recommend using your YouTrip card to save on those pesky charges you’d incur when you pay with conventional credit or debit cards.
That’s because YouTrip’s competitive Wholesale Exchange Rates will help you maximise your savings when you purchase in foreign currency – no fees, no markups. Somebody say yay to savings?
When it’s all said and done, it’s important to remember that we’re all in this together, and we can only make it through this pandemic by helping each other.
Enjoy a travel experience with no fees worldwide!