Academic Donald Low gave 2 scenarios of how the Sing dollar can come under speculative attack and drew from the two scenarios that 'if our fundamentals are strong, we don't need to accumulate even more reserves for the purpose of defending the currency.'
It is naive to think that crises come only in the form of a speculative attack.
As a small country with a very open economy, the economy of Singapore is very sensitive to global trends and changes, more sensitive that many others.
Singapore was the FIRST country in East Asia to slip into a recession in 2008 even though we have very strong fundamentals.
Singapore was able to bounce back quickly because the Government had the resources in the reserves to take several measures
Among the measures the Singapore Government took was to use our reserves to guarantee all bank deposits (both in Singapore dollar and foreign currency deposits of individuals and non-bank customers in banks, finance companies and merchant banks licensed by the MAS) from October 2008 through to the end of 2010.
The purpose was to shore up confidence in Singapore's financial institutions.
Imagine how things would have turned out if Singapore did not have the resources to take the measures that they did.
In a worst case scenario, what happens when confidence in financial institutions is lost? Not a difficult question for any reader to answer because most of you have money in banks.
Therefore, strong fundamentals must include strong reserves.
What does it mean to have strong reserves?
It means that as the size of our economy grows, our reserves must grow to keep up with our economy so that it is sizeable enough to anchor a bigger economy.
Operating large budget deficits is a reflection of weak fundamentals.
Using large amount from the reserves to 'hide' otherwise large budget deficits is hardly strong fundamental. It's delusional.
#NotAGameOfCards
#yourlifeandmine
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