Lee Kuan Yew: US Policies Bad For Dollar; Singapore Seeks Balance On Stronger Local Dollar

29Apr11

Lee Kuan Yew interviewed on exchange rates and more.  Wall Street Journal:

Former Singapore Prime Minister Lee Kuan Yew said a stronger local currency could help ease inflation in the fast-growing Asian city-state, even as he warned of a continued weak U.S. dollar–and potentially more inflation–in the U.S.

Speaking in a wide-ranging interview with The Wall Street Journal and Dow Jones Newswires, the 87-year-old founder of modern Singapore said he also thought his country could become a “secondary center” for trading the Chinese yuan, after Hong Kong, as it continues to expand its role as one of Asia’s primary financial centers. He said he believes Singapore will continue to benefit from rapid growth in China and India in the years ahead, despite risks of overheating and higher inflation region-wide.

“World inflation is not a problem Singapore can control, except by increasing the value of our currency to keep the price of imports down,” he said. But the authorities mustn’t let the local currency get too strong because “we must keep the price of our goods and services competitive.”

“It is a fine balance,” Mr. Lee said. “On the whole, we will do well.” …

“You can print dollars but in the end, you are going to reduce the value of the dollar,” he said. “When other peoples borrow money, they have got to pay back in dollars. When Americans borrow money, they just print their dollars but the cost comes with the lower value of the dollar and then inflation.” …

“Hong Kong will be the first” global center for trading yuan outside mainland China, Mr. Lee said, but “we may be a secondary center,” he added. “Hong Kong is part of China. Hong Kong is well connected with the international financial markets. So China will use Hong Kong; the overflow may come to us.”

If Singapore does become a hub for more yuan-denominated transactions, it would likely be seen as a significant step toward further normalization of the Chinese currency, which remains subject to tight controls by the Chinese government. …

Mr. Lee said he thought it could take a while, though, before China takes more dramatic steps to liberalize trading in its currency.

“It will be some time before they make their currency convertible,” he said. “They have very strong internal reasons to make sure that once they open up, they will not be destabilized.”

Another important step for Singapore — and one opposed by many ordinary citizens — is to continue accepting migrant workers to offset the country’s low birth rate, he said.

“If we do not accept migrants, we will be an aging and a declining population,” he said. Although many Singaporeans are “discomforted seeing about one million foreign workers in our total population of 5.1 million,” many of those workers do the construction and heavy work needed to keep Singapore’s economy humming. “If they are not here, who will do this work?” he said.

He said Singapore will continue to have an advantage over some other economies because of its widespread use of the English language, which remains the primary language of international business.

“Our great advantage was we chose a working language that did not belong to any of us — English — so no race had an advantage,” he said, which also makes it easier to attract talent. “China cannot do that because of their difficult language,” he said.



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