This article serves to educate you – the young people in this country – about certain essential facts you must know influencing the paper money that you spend every day and how this system may or may not withstand the changes in the world economy. It is by no means extensive, but I hope it serves as a good introduction for many people.
Singapore doesn’t have a Keynesian capitalist economy, unlike many leading capitalist nations (the United States, European Union and Japan) around the world. I used to think we have one, but no, Singapore’s very own economy is closer to that of Socialism, like China today.
In a Keynesian economy, there is a mix of private sector force and public sector force influencing the economy. Many capitalist nations around the world have Central Banks managing their monetary policies. Central Banks are essentially semi-private national entities that are responsible for issuing paper currency in a country. The bank influences the economy through manipulating Interest Rates, and thus borrowing limits. High Interest Rates lower the amount of money people can borrow from banks, while low interest rates allow people to borrow more. Since a nation’s reserve bank naturally has the lowest interest rates among all banks in the country, in order for private banks to survive, they must lower their lending interest rates as well, else their rates cannot compete with the national bank if it is too high.
Then here comes the trick. When a country’s sovereign debt mounts through excessive government spending or decrease in tax revenue, the nation’s reserve bank, in order to sustain public funding, will raise money for the government by lowering it’s interest rates. This makes it easier for governments to borrow money from private financial institutions, and print more paper money. Of course this trick only works within the country, hence it is useful only for borrowing money from local banks; since a country’s fiat paper currency is worthless outside their jurisdiction unless converted into the US Dollar, the international currency today.
The US Dollar is still the reserve currency of the world as it was regarded as the most stable since it was tied to the Gold standard (not anymore). I say ‘still’ because very soon it may no long be the case. Why is that so? Today, the US Dollar operates as a fiat currency, like many currencies around the world. Since the Great Depression, the United States Federal Reserve Bank has been acting as the country’s central bank. The name ‘reserve bank’ is misleading because since the 1970s there isn’t really anymore gold or silver in its vault that is of equivalent worth to the paper money it issues. Meaning if one day the US Dollar is to become worthless, and if you hold US Dollars, you cannot exchange them for their precious metal equivalent: Gold and Silver. What is now kept in the ‘reserve’ bank’s vault is therefore a big question. Basically, if you still hold US Dollar on that very day, I’m sorry to say you would actually be quite screwed.
Will this ever happen to them? Just imagine how much it cost to finance troops deployed all around the world to fight endless conflicts, while constantly sustaining a negative net cash-flow at home. The British Empire (or United Kingdom) the empire which stretched across every surface of the globe before WW2, didn’t make it; neither did Soviet Union, the nuclear power that rivalled the United States during the Cold War. United States is not likely an exception to this fate.
But although it may seem to be only United States’ problem, should the US Dollar becomes junk papers, the fact is that it will develop into an international crisis. Because the US Dollar is also the reserve currency of the world, like the way British Pound Sterling was before WW2. Imagine, that you are the Singapore government and you want to buy some oil from Saudi Arabia, you cannot just pay them Singapore Dollars because they would not accept it. You must first buy US Dollars from the Foreign Exchange market with your Singapore Dollar, and then use the US Dollars acquired to pay for the oil you need. And just imagine again, as US Dollar keeps losing its value, you start seeing yourself pay more and more US Dollar for increasingly less and less oil.
What will happen is the price of oil and other commodities will go up in your country not because your currency is weak, but because you are forced to transact with an inflating currency. Interestingly, the extra money that you pay does not go to Saudi Arabia or any of the oil producing countries; the money goes to the United States government through the tricks played by the United States Federal Reserve Bank. It affects all of us!
That’s all I have to say about the Keynesian financial world we have today here.
But I did say Singapore, like China, is quite different from that model. Singapore doesn’t really have a Central Bank in that sense. Monetary Authority of Singapore (MAS), our equivalent of a Central Bank, operates on a foreign exchange platform. Unlike other Keynesian economies, we do not play with Interest Rates but Exchange Rates. By trading foreign currencies in a foreign exchange market, MAS attempts to influence the buying-power of the Singapore Dollar. You may want to make a guess: what currencies do we hold there? I do sincerely hope they kept some Gold and Silver there. Perhaps [sadly] a large deposit of US Dollars? We can never be sure.
Just like the United States Federal Reserve, not many people know the inside work of the MAS because everything is kept secret, or at least they ‘have to be’. You must have heard stories that not even the Elected President of the Republic, who holds some custodial powers over the reserve bank can easily know what is going on inside.
So you see the difference between Singapore’s monetary policy and the rest of the capitalist world today is that while others have private to semi-private reserve banks, Singapore’s reserve is state-run and owned (at least on paper), more like the Peoples’ Bank of China.
There is no doubt that during our founding years, Singapore modelled its economy based on socialist ideals. The ruling party since then, the People’s Action Party (PAP) headed by the then Prime Minister Mr Lee Kuan Yew, started off as a socialist party too. Maybe it was out of necessity, but the PAP did manage to harness significant amount of support from trade unions (mostly left-wing labour movements) to bring itself to power. Despite a post-independence split of left-wing elements from the party, PAP’s economic policies continued to center around building a state-economy.
Singapore’s economy resembles the classic Chinese socialist ideal, an economic ideology coined by Dr Sun Yatsen during early 1900s, and later implemented by Deng Xiaoping during the 1980s chinese economic reform. The so-called “China’s Way to Socialism” involved nationalising natural resources, public utilities and transportations, in order to fund public services like educations and economic welfare schemes. The Singapore government seems to have borrowed and then re-tailored this economic model to fit Singapore’s economic profile.
The Singapore government controls two of the world’s largest Sovereign Wealth Funds namely, the Government of Singapore Investment Corporation (GIC) and Temasek Holdings. GIC takes care of the state’s overseas assets and investments, while Temasek Holdings largely dominates the domestic economy.
Domestic assets owned by Temasek Holdings include state media and press, telecommunication infrastructures, postal service, stock exchange, banks, ship-building, port operation, public transportation, airline company, military industry, real estate development, energy and etc.
Although GIC and Temasek Holdings are government-owned funds, they do enjoy a certain level of autonomy, just like any privately-run corporations. This means that even though the money managed by these funds come from the Singapore government, their managers do not need to seek the government’s approval in order to make decisions. GIC and Temasek Holdings have their own Board of Directors, who are solely responsible for the funds’ investment decisions and fund allocations. The Boards however, like the MAS Board, are still accountable to Elected President of Singapore, who supposedly has the constitutional authority to check on their operations in order to safeguard Singapore’s sovereign assets. Today however, how much power the President has over these assets is still questionable though. But by-and-large we see that every corner in Singapore’s economy, be it financial or industrial, largely fall into the responsibility of the state.
In Conclusion. Some people may consider Singapore a Keynesian Capitalist Economy, owing to the mix between a state-controlled economy as well as free market leanings. Yet the same group of people should be equally puzzled by the many differences between Singapore and the rest of the Keynesian Capitalist world including the United States and much of Asia. They are forced to acknowledge the existence of a ‘Singapore Way’, a term our statesmen feel proud to preach about. But instead of saying we are a Capitalist Economy with state intervention (like the Keynesian), I say we are closer to being a Socialist Economy plus aspects of free market. That, resembles the post-Deng Xiaoping era Chinese economy we see in China today.
Proofreading done by Local Grammar Police Ooi Teck Chau.
