Singapore added to US watch list for currency practices

[SINGAPORE] Singapore was added to a watch list for exchange rate and macroeconomic policies by the United States, which said the city-state made estimated net foreign exchange purchases of at least US$17 billion in 2018, equivalent to 4.6 per cent of gross domestic product.

The US report says Singapore should undertake reforms that will lower its high saving rate and boost low domestic consumption, while striving to ensure that its real exchange rate is in line with economic fundamentals, in order to help narrow its large and persistent external surpluses.

In the latest twice-yearly currency report, the Treasury Department expanded the potential list of nations it reviewed from around a dozen to 21 by lowering the threshold for review in such areas as the size of the country's trade surplus with the US, the size of the trade surplus with the world and the number of times the country intervenes in currency markets, CNBC noted.

This may have resulted in the number of countries on the watch list rising to nine from six in the previous report in October.

Apart from Singapore, four other nations were added to the watch list - Ireland, Italy, Malaysia and Vietnam. Four others were kept on the list - China, Germany, Japan and South Korea - while two nations, India and Switzerland, were removed.

Countries with a current-account surplus with the US equivalent to 2 per cent of GDP are now eligible for the list, down from 3 per cent while the threshold for the trade surplus with the US was lowered to US$20 billion.

Countries that meet two of the three criteria are placed on the watch list, where their trade surpluses with the United States and other indicators are closely tracked. China meets only one of the criteria, but was placed on the list because of its large trade surplus with the US.

Under a 1988 law, the Treasury Department is required to report to Congress every six months on whether any countries are manipulating their currencies to gain trade advantages over the US. Those found doing so may face trade sanctions.

The last time a country was named a currency manipulator was China in 1994 during the Clinton administration. During the 2016 US presidential campaign, Donald Trump vowed to brand China a currency manipulator as soon as he took office. But so far, his administration has passed up five opportunities to do so in the twice-yearly currency report, CNBC noted.

BLOOMBERG