Parliamentary Replies
Published Date: 22 February 2001

Reply to PQ on devaluing the Singapore currency for increased competitiveness

Issues Raised in Parliament

Reply to PQ on devaluing the Singapore currency for increased competitiveness

Date: For Parliamentary Sitting on 22 Feb 2001

To ask the Deputy Prime Minister whether the Government will devalue Singapore's currency to make its products more competitive.


1 Singapore's exports have performed strongly over the past year. Non-oil domestic exports (NODX) increased by 11.8% in 2000. Since Nov 2000, the growth of NODX has moderated1, as external demand weakened with the slowdown in the global electronics industry.

2 A devaluation does not necessarily boost our exports, except in the short run. The import content of our domestic exports is very high at 60%. So a weak exchange rate would lead mainly to higher CPI inflation and higher import costs for manufacturers. In addition, with the economy operating at full capacity, a weaker Singapore dollar would cause the labour market to tighten, nominal wages to go up, and inflation to rise. This would negate the initial positive impact of a weak exchange rate.

3 &nbs Furthermore, the inflation caused by a devaluation would erode the purchasing power of the substantial CPF savings of Singaporeans, which are denominated in Singapore dollars.

4 This is why the MAS manages the S$ exchange rate with a view to maintaining low inflation and a stable Singapore dollar, as a sound basis for sustained economic growth. It has deliberately not used the exchange rate as an instrument to manage our export competitiveness. Instead the Government has focused on direct ways to reduce business costs, improve labour productivity and enhance capabilities, such as the CPF cut in 1998, which has now mostly been restored. The fact that with this approach the economy recovered quickly and strongly from the Asian crisis, and grew by 9.9% last year, shows that our policy is correct.

1 NODX averaged 3.7% over Nov 2000-Jan 2001.