THE REAL REASON SINGAPORE HIDES ITS RESERVES IN PLAIN SIGHT

The title is an oxymoron but appropriate. In the previous blog I presented evidence and empirical support the argument Sing dollar can never be attacked by currency speculators. This suggests the government's constant reminder for secrecy of the size of the reserves is to protect SGD from currency speculators is a fallacy. If so, what then is the real reason for the secrecy. Here I explain what is the only logical reason for the secrecy and the idiosyncrasy that whilst adamant at the official stand, the reserves are in plain sight all along.

The 4 Truths about Reserves:

(1) What are reserves : (19 Aug 2023) To Find Out How Much Is The Reserves You First Must Know What It Is..

(2)What is the size of our national reserves: (22 Aug 2023) Singapore Reserves Revealed - Unlike CNA Videos This Is For Real. 

(3)The lie about need to keep reserves a secret: (28 Aug 2023) Keep reserves secret to protect SGD is a fallacy - SGD cannot be attacked. 

(4) An oxymoron reality :(1 Sep 2023) The real reason Singapore hides its reserves in plain sight.

In 1925 after Britain returned to gold backing for pound sterling, there followed a period of exchange rate stability. But what the public didn’t know was it still required Bank Of England intervention to maintain parity. Fixed rate is a misnomer. All currencies whose rate is fixed, or pegged to another currency, or metals, require central bank market intervention to maintain parity. We saw this in the examples of currency attacks in the previous blog. BOE market intervention was conducted with utmost secrecy less the market, if aware of its actions, would counteract its moves.

Britain abandoned the gold standard in 1932 and pound sterling began experiencing high volatility. BOE needed a pool of foreign currencies readily available to be tapped to buy up GBP whenever it came under selling pressure. It then created the Exchange Equalisation Account with funds pulled from public savings elsewhere, ie reserves. This was the start of what is now known as ‘foreign reserves’. The operation of the EEA was conducted under extreme secrecy.

1930s was a time of recession in the West. All counties wanted to booster exports which expands economic activity and employment. BOE kept GBP rate down so British goods were cheaper and exports boosted. It is not a zero-sum game. BOE intervention caused USD to rise which affects American exports. In 1933 US depreciated the dollar. Then in 1934 US started its own reserves fund called Exchange Stabilization Fund (ESF). What followed was competitive depreciation done in stealth as each country tried to undervalue its currency. This caused distrust and strained Anglo-American relations deeply.

But it was the French that suffered most as the Franc appreciated substantially against both GBP and USD. To put a stop to the race to the bottom, Britain, US and France agreed to negotiate. A strong Franc caused unemployment and social unrest, putting France at risk to a rising Nazi Germany. That gave impetus to the signing of the Tripartite Agreement in 1936. It was a triumph for multilateralism, a watershed in monetary history where countries agreed on a framework predicated on cooperation to restore order in international economic relations. They agreed not to fix exchange rates by intervention, but instead seek greater stability and use exchange funds to this end.

The purpose for this backdrop is to show fixing exchange rates done in secrecy is held in disdain and mistrust by trading partners. It is an unfair trade practice that can strain relations and invite retaliation. The US collects economics intel and have in the past accused several countries of unfair trade practices by manipulating the exchange rate, keeping currency under-valued to boost exports. The US-China tariff war was a consequence.

Singapore has always responded to accusation of currency manipulation on the ground SGD is free float and central bank intervention is only to smoothen out daily liquidity driven volatility. But it is hard to be convincing when foreign reserves keep piling up. It means MAS keeps pressing the rate down, means keep Sing Dollar under-valued. This is something Critical Spectator and his IBS googo gaga followers cannot comprehend. They think massive increase in MAS foreign reserves is good, it means Singapore is making lots of profits. When finally realising it is not profits, maybe as a consequence of me who kept punching at his error, the Polish blogger later twisted it to contend well, with increased foreign reserves means MAS can transfer more to GIC to earn more investment income. Oblivious to increased FX and interest rate exposures from an increase in OFR, CS had nothing to say to the SGD30b loss by MAS last year. With blinders on and brainwashed minds, CS and his horde cannot, and even worse, refuse, to see the downside of a massive foreign reserve presents the government with a challenge. How to fool prying eyes.

One way for recalcitrant countries to go under the radar is to keep bloated foreign reserves out of view and not to reveal market intervention statistics. Singapore has honed this skill well.

The MAS resisted reporting market intervention statistics for decades. Under much pressure, it finally started to report market intervention about 3 years ago in line with all central banks. Why was Singapore reluctant to file this report? Well, if market intervention was to smoothen daily volatility, as claimed, statistics will show somewhat even buy and sell interventions. If it is predominantly intervention to sell SGD, that is the smoking gun of manipulation to under-value the currency. Now that MAS is complying on the reporting, well and good. Not implying anything, but it’s ownself report ownself.

The massive size of official foreign reserves in MAS books is open to scrutiny. It needs to be funneled out. MAS has squirreled out billions to be booked in GIC. Officially, these are foreign reserves in excess of the needs of MAS which were transferred to GIC to invest in better yielding assets. In the past, such transfers were done when the balances in government’s account at MAS accumulated to a sizable amount in access of its immediate needs. These accumulation came from proceeds of government securities and land sales, and budget surplus. The foreign reserves were building up much faster than the excess funds in the government's account at MAS. A new mechanism had to be devised. This came in the form of Reserves Management Government Securities. These RMGS are non-tradeable SGD-denominated securities subscribed by MAS and settled in foreign currencies. It’s a mechanism that allowed MAS to easily bulk transfer massive foreign currencies to GIC starting in 2022.

Stop. Take a deep breath. What did I just say? The government hides foreign reserves size to avoid scrutiny and accusation of currency manipulation. My earlier blogs and video on this topic are fact based. This one is just my opinion but the circumstances as I described, can only lead to the conclusion I arrived.

Now having transferred excess foreign reserves to GIC, it became incumbent to further block the books of the sovereign wealth fund from prying eyes. A detailed analysis of statutory audited accounts of GIC may permit a re-engineering to determine the actual size of foreign reserves built up by MAS in the past to current times. By blocking out GIC, it has also made it impossible to determine the size of our national reserves as I showed in my earlier blog the 2nd Truth.

Now here is the crazy part that is best prefaced with a Shakespearean quote:

‘Oh what a tangled web we weave / When first we practice to deceive’

Does anyone notice when the subject of secrecy of reserves comes up, officials discombobulate the matter by avoiding the specifics. It’s always “we keep the reserves secret to keep currency speculators away”. This is where the rubber meets the road. What reserves are they talking about? The foreign reserves or the national reserves?

The national reserves is what’s in the public accounts that belong to the public, we the people. The public entities are government, MAS, Temasek, GIC and all statutory boards. The net assets in all these entities make up the national reserves which belong to us.

Foreign reserves are a class of assets in MAS collectively called Official Foreign Reserves (OFR) of a country. These are very liquid foreign assets such as cash balances or securities. Traditionally these came from a country’s foreign savings, earnings or surpluses which are set aside to provide the liquidity needed to enable importation of goods during a currency crisis. Countries keep enough foreign currencies to support 2 or 3 months of import needs. To this extent, OFR is part of national reserves because it came from savings. Our initial OFR held by the Currency Board was certainly part of national reserves because it came from savings. The question here is, is the massive OFR today in MAS’s books of about SGD450b national reserves? And the answer is no. MAS equity is now just SGD34b (SGD50b share capital less negative general reserves of SGD16n). The massive OFR did not come from savings, but debt.

So why does it matter for officials to specify which reserves they mean when talking about secrecy in order to protect the SGD? Because its a discombobulation that’s been going on for years and no one has the gumption to tell these scholars off. You have 2 bullets of truth depending on which reserves they mean.

If they mean national reserves, then it is a fallacy. Because in a currency attack, the size of the country’s national reserves mean nothing. They are illiquid assets. What is needed during a currency war are foreign currency bank balances and securities that can be liquidated immediately and converted to cash. Britain lost on 16 Sep 1992 Black Wednesday when their foreign reserves ran out. But they still had vast wealth in their oil and gas fields, ports and wharfs, military bases all over the world, etc. Likewise, in an attack on SGD, the portfolios of GIC and Temasek mean nothing. Liquidity is the ace in these poker games, not wealth.

If by reserves they mean the OFR with MAS, then the scholars got it right. In a speculative attack on SGD, only the OFR matters. That is the war chest MAS relies on to fight currency speculators. However, if they say we need to keep the size of foreign reserves a secret, then we have a case of scholarly nincompoops or outright liars. The reason is because MAS foreign reserves are in plain sight all along. MAS publishes the OFR balances on its website which is updated monthly. The latest as at 31 July 2023 is SGD452,504,800,000.

Conclusion

Singaporeans have been bamboozled with this secrecy narrative far too long.

If they mean to hide the size of national reserves from currency speculators, they got it wrong. Illiquid assets of national reserves is not part of the war chest of MAS. Hiding it makes no sense.

If they mean hide the Official Foreign Reserves of MAS, then they are ridiculously out of touch because MAS foreign reserves have always been in plain sight.

The circumstances suggest the real reason for moving excess OFR out to GIC is to avoid scrutiny of the size of the OFR in MAS which attracts accusation of currency manipulation. RMGS is a good device to facilitate the transfer of OFR out, but it does not hide the trail because RMGS remains in MAS books but not under the foreign reserves line. MAS website shows as at 31 July 2023, OFR is SGD452,504,800,000, RMGS is SGD237,600,000,000. Any idiot will know MAS had acquired foreign reserves up to at lease SGD690,04,800,000 +++ billions transferred in prior years without trail.

There are those who suggest the secrecy narrative provides the excuse to block publication of audited statutory financial statements of GIC to cover massive removal or loss of national reserves. This is going into the realm of contra-factual, something I avoid, except just to say historically, secrecy in officialdom seldom offer a happy outcome for the public.



A parting shout out :

Plato said:
“The price good men pay for indifference to public affairs is to be ruled by evil men.”
If you like what you read here and feel it matters Singaporeans know stuff like this, please click and share with your social circle. This makes my effort worthwhile.

This platform has withdrawn it's subscriber widget. If you like blogs like this and wish to know whenever there is a new post, click the button to my FB and follow me there. I usually intro my new blogs there. Thanks.