Say how a change in the Singapore dollar affects imported prices, exporters, jobs and what you spend overseas.
When the Singapore dollar rises or falls, the change reaches you through several channels at once. Some of them help you and some cost you, and they arrive at different speeds. That makes it hard to turn a headline about the currency into an answer about your shopping, your job and your savings.
Consider two things you might hear in the same month. The Japanese snacks you pick up every month cost a little less than they did in spring. A friend employed at a Singapore hotel mentions that bookings from overseas guests have come in softer than expected. A strengthening Singapore dollar can explain both, and the term means that each Singapore dollar now buys more foreign currency than before.
Of all the effects, MAS pays closest attention to the one on imports and inflation. Most of Singapore's food comes from abroad, as does almost all its fuel and most of the cars, phones, clothes and appliances bought here. Each of these carries a price set overseas in some other currency, and somewhere between the factory and the shop that price is converted into Singapore dollars. If the Singapore dollar strengthens, an importer needs fewer Singapore dollars to pay the same foreign price.
The arithmetic has three parts. Start with the price in the foreign currency, use the exchange rate to turn it into a Singapore-dollar cost, and then set the cost before the rate moved against the cost after. Suppose an importer brings in a carton of instant noodles from Japan at 2,000 yen. With 100 yen costing S$1.00, the carton costs the importer S$20. After the Singapore dollar strengthens, 100 yen costs S$0.95, and the same carton costs S$19, which is about 5% less.
The change you see at the shop is usually smaller, and sometimes there is none. The importer still pays for shipping, rent, wages and its own margin in Singapore dollars, and none of those costs move with the exchange rate. The shelf price therefore drops by less than 5%, if it drops at all. Repeat that across thousands of imported items and prices in Singapore climb more slowly than they otherwise would. Lesson 1.1, "Why MAS manages the Singapore dollar instead of an interest rate", showed that this makes a stronger dollar MAS's main tool against inflation. When the Singapore dollar weakens, the process runs in reverse: importers need more Singapore dollars for the same goods, and inflation picks up.
Companies in Singapore that sell overseas get paid in one of two ways. Some quote prices in Singapore dollars, and others are paid in foreign currency and convert it back. A stronger Singapore dollar makes the first group's goods dearer for foreign customers and gives the second group fewer Singapore dollars for each sale. Many firms face both.
Priya, whom you met in Lesson 1.2, "Slope, width and centre: how the policy band works", works for a company selling equipment to factories around the region, and she wanted to know how a stronger dollar would affect it. The company can put up its prices in foreign currency and risk losing orders, or it can keep its prices where they are and live with thinner margins.
Hotels, restaurants and taxis in Singapore face the same pressure. For a visitor who pays in yen or any other currency, a night's stay, a meal and a taxi ride here cost more once the Singapore dollar has risen. Your friend's quieter bookings and your cheaper snacks can both trace back to one currency move.
People and businesses buying from abroad gain from a stronger dollar, and firms selling abroad find it harder. Export manufacturing, logistics and hospitality are examples of a trade-exposed industry, one whose earnings depend on foreign buyers. If you work in one, your job and your bonus are among the things that can be squeezed.
At home, a stronger Singapore dollar has three direct effects:
holidays abroad and purchases from overseas cost less imported groceries and goods go up in price more slowly any foreign assets you already own, such as shares listed in the US or a fund priced in US dollars, are worth fewer Singapore dollars
Many people don't expect the third effect, because it happens even when the asset's own price stays the same. To check it, multiply the asset's value in foreign currency by what one unit of that currency costs in Singapore dollars, once at the old rate and once at the new. Say you own US shares worth US$10,000, an example figure, and the rate goes from S$1.35 to S$1.30 for each US dollar. At S$1.35 your holding is worth S$13,500. At S$1.30 it is worth S$13,000, though the share price hasn't moved. Lesson 6.4, "Currency risk in foreign investments, hedged and unhedged", covers this in full.
If the Singapore dollar weakens, each of the three reverses. Travel and imported goods become more expensive, and your foreign assets are worth more in Singapore dollars.
When MAS tightens, checkout prices the following morning stay where they were. Importers are still selling stock bought at the old exchange rate, and their supply contracts were priced months in advance. Most shops revise their prices only a few times a year. On the export side, orders fall away gradually, and hiring slows or bonuses are trimmed later again. It takes months for a policy change to work through to prices and jobs.
MAS knows about this lag, so its statements look at where inflation and growth are heading over the coming year. Use that same horizon when you judge a change. What prices do in the week after it tells you very little.
Plenty of what you buy feels local but comes from abroad, including rice, cooking oil, fruit, phones and petrol. Other things are a mostly local cost. A haircut or a hawker meal is priced more by rent and wages than by the exchange rate, although the hawker's ingredients are often imported.
Pull up last month's receipts or your card statement and pick out the things that came from abroad. For each one, ask yourself a simple question: if the Singapore dollar were stronger, would this be cheaper, and by roughly how much of the move?
List five things you bought last month that are mostly imported. Next to each, note how a stronger Singapore dollar would affect it.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).