Wednesday, January 28, 2015

MAS Sing Dollar Surprise

I was explaining what happened to the Singapore dollar this morning to my elder child this tonight.

Those who understand what happened got the news elsewhere but how is the average person going to understand what "slope of monetary policy" mean? They tried so hard to simply downplay the most meaningful fact, i.e., the SGD has depreciated massively against the USD because of MAS decision.

I just found this to explain to the kids.

Ah they know way more than enough math to handle the meaning of the "slope". They mostly called it gradient in school.

Because we also like to brand ourselves as a hard currency, the look good graph has an upward pointing slope hinting of currency appreciation. Singaporeans like a strong SGD especially when they go on overseas holidays.

In the A levels economics they were taught the official reason for our targeting the exchange rate in order to target inflation to achieve sustainable growth. I told them in real life right now that objective is secondary to protecting jobs by helping our businesses remain competitive. Low inflation has no meaning if you have no job and no money.

I told them the economics they learn in school is mostly "useless". The only thing they could take with them is that such ideas, concepts and models exist but you can't just apply them. They will have to de-learn and learn to be flexible in applying the knowledge.

Things are happening very quickly and MAS couldn't wait till their meeting in April to act. Now that is a double message from them. People who are clued in shouldn't be surprised with what MAS had done. Of course you can't tell when exactly but definitely before the next scheduled meeting. In fact they have many arbitrary dates from a wide range of days to make this move. So how can you ever pinpoint the moment? Those who want to profit should just get ready and wait. Those who naively believed MAS officially stated monetary objective will lose money because what's the problem waiting for April to act except that they ended up acting early? At least ours don't mislead and lie like their Swiss counterparts.

1 comment:

  1. I hope we will not follow down the "sick route" of the Fed (and the west)

    An Entire Generation of Fund Managers is Unprepared For the Next Crisis
    Submitted by Phoenix Capital Research on 01/28/2015

    Very much like raising a child, pampering or sheltering will cripple it forever

    "Patient" Fed's Other Problem: A Third Of Traders Today Have Never Witnessed A Rate Hike
    Submitted by Tyler Durden on 01/28/2015