No one currency ‘unduly affects’ Singdollar’s stability: Alvin Tan

[SINGAPORE] No single currency “unduly affects the broad stability of the Singapore dollar”, said Minister of State for Trade and Industry Alvin Tan in Parliament on Thursday (May 7).

Tan, who is also a board member at the Monetary Authority of Singapore, was addressing a question about the changing role of the US dollar.  

Yio Chu Kang SMC Member of Parliament Yip Hon Weng asked how “global shifts away from the US dollar” would affect its weight in the Singapore dollar nominal effective exchange rate (S$NEER) index basket.

This is a trade-weighted mix of currencies of Singapore’s major trading partners, used to manage monetary policy.

Tan said the weights of currencies in the basket are periodically reviewed and updated to reflect the Republic’s evolving trade patterns.

He also noted that the US dollar remains dominant globally, used in international trade and for most commodities. It is the world’s dominant reserve currency and invoicing currency.

Most global trade is invoiced in just a few currencies, such as the US dollar, which accounts for about 40 per cent of global exports, he said, adding that despite some growth, other currencies are still used to a much smaller extent.

For example, the renminbi’s share in global trade invoicing is less than 2 per cent, though this is increasing in the Asia-Pacific and Europe.

Tan also highlighted that the US is one of Singapore’s largest trading partners.

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“The diversified currency composition of the S$NEER basket reflects the pattern of Singapore’s trade with its main import sources and export markets,” Tan said. “These are structural factors that evolve gradually over time.”

The Singapore dollar has been on an appreciating path since monetary policy tightening in October 2021. The S$NEER has since increased by 12 per cent, Tan noted, highlighting that this has dampened the effect on imported inflation in Singapore, and its downstream impact on its economy.