They can go for affordable holidays and shop in neighbouring countries. Singapore can also import goods and essentials more affordably.
Our reserves signal to currency markets the strength of the Singapore dollar and we should not take the use of our reserves lightly, Minister Chan Chun Sing said in his new year message.
“How much we spend and how much we save will also signal to the currency markets what they can expect the strength of the Sing dollar to be,” Mr Chan said.
“If the world thinks we are running an irresponsible or unsustainable fiscal policy, you can well imagine what they will do to the Sing dollar,” he added. “If the world does not believe in the strength and stability of the Sing dollar, you can also well imagine what will happen to our savings and our reserves.”
Indeed!
The size of our reserves during the Asian financial crisis in 1997 put Singapore in a strong position and left the Singapore dollar relatively unscathed when the currencies of many countries came under assault and were falling like dominoes.
The global financial meltdown of 2008 also shows how crucial financial reserves were to a small open economy without natural resources like Singapore.
This was first time the government had to dip into the past reserves.
To shore up confidence in Singapore's financial institutions, the government used $150 billion from our reserves to guarantee all bank deposits from October 2008 till the end of 2010.
The guarantee covered all Singapore dollar and foreign currency deposits of individuals and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (MAS).
Then in January 2009, because of a fast deteriorating global economic environment and facing the prospect of a deep and prolonged recession, the government sought the President's approval to take out S$4.9 billion from past reserves to fund two one-off measures to boost the economy, namely, the Jobs Credit scheme and the Special Risk-Sharing Initiative (SRI) and to save jobs.
When you have no natural resources and no vast land either, the size of your reserves, no matter how big, is never enough, not forgetting that the size of your reserves is also subject to currency fluctuations and can change overnight.
Academic Donald Low asked:
".. what or who are we saving for, considering that future generations of Singaporeans are likely to be better off than the current generation of Singaporeans entering retirement?”
A shocking question coming from an academic from a renown school.
The answer is: We are saving for all Singaporeans and for rainy days.
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