Jamus discusses MAS losses.
17 hrs ·
Recently, the MAS reported a significant loss for the most recent financial year. Furthermore, these losses have been largely attributed to “translation,” resulting from the strengthening of the Sing dollar (SGD). Now, I am on record for supporting a higher valuation of the SGD. Minister Lawrence Wong, in his response in Parliament, already explained why the losses do not impact MAS’s ability to conduct policy, and has minimal impact on the government’s budget. I think it is also worth explaining why I think these losses are largely innocuous in other ways.
There (at least) two main ways that these losses could have been realized. One is that MAS had foreign currency assets, and after these were sold (or, they were held to maturity and rolled over), they had a reduced value due to the fact that the Sing dollar had strengthened. This would probably have had to be assets in currencies other than the U.S. dollar, since the SGD didn’t strengthen all that much against the USD (we did against the pound, yen, and euro). This type of loss is hard to avoid; after all, you’d want the central bank to hold a diversified portfolio of foreign currency assets, and some losses that result from these due to currency movements is part and parcel of doing business.
The other possibility is that the losses were incurred in direct intervention to support the Sing dollar. This means that financial markets were selling SGD, and MAS went ahead to bolster the currency by buying back SGD (and selling foreign currency reserves to do so). If this was indeed true, I would be willing to issue a mea culpa: I did not expect that it would be costly, given the undervaluation of the SGD by many metrics.
Except that this does not even seem to be the case. Recently, traditional reserves have been transferred into a newly-created asset class, Reserve Management Government Securities (RMGS, and no, not an abbreviation for a new merged girls’ school); this is evident from the cash flow statement. The RMGS plays a similar role to Special Singapore Government Securities (SSGS), which is to facilite the transfer of assets to our sovereign wealth funds for better investment management. Based on MAS financial statements, reported losses likely result from this conversion, at current exchange and interest rates.
Moreover, even if we accept that the losses are truly the result of direct intervention, it is also important to recognize what this means from the perspective of national welfare. If the MAS had not intervened, then the effect of higher resulting inflation (due to the higher price of imports of goods and financial assets) would have instead been borne by the consumer or borrower. So while the MAS did lose money, it is far from clear that this was an incorrect policy choice, since the country could have benefitted as a whole, from lower inflation.
Finally, it’s useful to recognize that the losses here aren’t really full-on losses, in the traditional sense. The assets remain on the books of the MAS. Sure, there were some translation losses due to the need to mark-to-market during the conversion process, but these may potentially reverse if exchange rates subsequently move in favor of the new RMGS assets.
All these to say that I see little reason to fault the actions of MAS here, or to criticize the losses incurred. As loyal opposition, the
#workersparty focuses its critique on legitimate concerns, rather than knee-jerk objections to anything the government does.
#makingyourvotecount
Postscript: Incidentally, the amount of the losses, while seemingly large from the perspective of any individual, really aren’t that huge from a balance sheet (or financial markets) perspective. They amount to around 1 percent of total assets held by MAS. Such magnitudes are also not unusual; the 2021, for instance, MAS posted a net gain of $5.2 billion.
