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Strong foreign exchange reserves kept us from starvation: Lee Kuan Yew

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Why does Singapore hold reserves?

Singapore’s reserves serve three objectives:

  1. to serve as a buffer against crisis;
  2. to provide a stream of investment income to help finance part of the annual government budget; and
  3. to maintain confidence in Singapore’s exchange rate centred monetary policy.

The reserves are thus a rainy day fund, an endowment fund, and a stability fund.

In his national day message in 1973, Mr Lee Kuan Yew recounted how food prices had risen sharply.

These were caused by crop failures, a loss of confidence in paper currencies and the US dollar, and inflation.

“Because of the uncertainties over the value of floating currencies, industrialists, financiers and traders in the developed countries hedged against all paper currencies by buying into commodities,” Mr Lee told the audience. “This has led to a steep rise in the prices of commodities, both agricultural products and minerals.”

The price of cocoa went up three times. Copper doubled in price. Rubber almost doubled in price and the price of palm oil rose by two and a half times.

All countries were very hard hit by the sharp increase in the prices of food.

With no significant agricultural sector in grains, Singapore was affected by the world prices of grains, mutton and beef and other imported foods.

“It was unfortunate that just at the time when we were about to enjoy the increased benefits of several years of hard work, such a large part of our wage increases has to go into higher food prices,” Mr Lee said. “But perhaps, it is worth reminding ourselves how fortunate we have been that, because of industrialization and the development of physical and brain services in Singapore, we have had the foreign exchange to pay for our needs. No one has suffered starvation or malnutrition.”

But it underlines the importance of staying keen and efficient. We cannot afford to slacken and become easygoing. For once we are soft or disorganised, we will never be able to survive world crises of the kind the world is presently facing, food shortages, currency uncertainties, and if the crisis in American is prolonged, a danger of a possible downturn in international trade. Such a recession will affect the whole world.

– Lee Kuan Yew –

Concluding in Mr Lee Kuan Yew’s remarks

Mr Lee said, “We must stay well organised, and keen and hardworking to be able to take advantage of an upturn in international trade, especially in manufacturing products, when the present troubled political and financial situation is settled. By then, prices of basic foods like rice should go down dramatically with normal harvests.

In this way we can ride over the presently rough economic conditions and gradually but steadily raise our real living standards.”

History has shown us the importance of accumulating reserves to stand us in good stead during a crisis; the food crisis, the Asian Financial crisis in 1997, SARS in 2003, the Global Financial crisis in 2008/9, and now the global COVID-19 pandemic.

Many things may change but some things never change. This includes the virtue of saving for the future and savings for rainy days.

Reference:

  1. National Archives of Singapore
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