How does the Virus Stimulus Package, MAS Eyed affect the Singapore Dollar, USD/SGD outlook?
On the real view, there is not much to worry about. If you are a person that owns a business and is quite well-informed about your market in Singapore, you would be aware of the following.
The South East Asian Monetary Authority (SEAMA) has just announced that they have entered into a partnership with the US Federal Reserve System and Central Bank of Singapore. This partnership was initiated to improve the banking systems in both countries and also to strengthen the South East Asian Currency Trading Market (SEAM) in the long run. SEAMA, the Singapore Currency Exchange Market is a joint effort of SEAM and the central banks in the United States and Singapore to foster the exchange rate.
As a result of the partnership, they have imposed a currency control on the Singapore dollar, USD/SGD which can be seen in media reports. In fact, many of these reports are true. SEAM’s currency control aims to make Singapore dollars less attractive as they can only be exchanged in a certain number of major currencies.
The main currency which is affected by this new decision is the US dollar. The SEAM’s currency control does not apply to Singapore dollars, USD/SGD but only to the main currency. This means that if you want to buy a US dollar, you will be required to buySingapore dollars, USD/SGD instead.
Of course, the SEAM has issued this currency control because they believe that it would be more beneficial for the SEAM to have USD in their national currency. Besides, SEAM is part of the US Federal Reserve System and they are also closely related to it.
To begin with, the SEAM’s currency control makes it much more difficult for the Singapore dollar, USD/SGD to gain as a reserve currency. Even though the SEAM, the Singapore dollar, USD/SGD, and the United States dollar are related to each other, both SEAM and the USD are still independent currencies.
However, as long as the dollar holds its position as a reserve currency, the Singapore dollar, USD/SGD will be very strong. At the same time, the SEAM, the Singapore dollar, USD/SGD and the United States dollar have been closely related to each other in terms of exchange rates. Since the seam and the USD have now joined forces, it would be better for SEAM and the USD to trade together.
If SEAM is trading with the USD and the United States, SEAM and the Singapore dollar would be trading as a couple. Now, you may ask why this is important. Well, if the seam and the USD are trading as a couple, it will give SEAM a greater strength to trade against the United States and Singapore dollar.
Indeed, SEAM and the USD are related and trading with the USD and the Singapore dollar would be like SEAM and the United States dollar trading together. Moreover, SEAM and the USD are also related to SEAM and the Singapore dollar in the business world.
Now, let us look at the current level of the exchange rate between SEAM and the USD. The actual exchange rate, in the past, is already very close to the current level. and the SEAM is fairly close to the SEAM/US dollar exchange rate.