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

Crisis, Food, Prices, Lee, Singapore, Increase

Is there a reason Singapore holds reserves?

The reserves of Singapore serve three purposes:

  1. To provide a buffer against crises;
  2. Provide a stream of investment income to finance a part of government budgets;
  3. Maintaining confidence in Singapore’s exchange rate-based monetary policy.

A reserve is therefore a rainy day fund, an endowment fund, and a stabilization fund.

Mr Lee Kuan Yew recounted the sharp rise in food prices in his 1973 national day message.

The results of these factors included crop failures, a loss of confidence in paper currencies and the US dollar, as well as 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,

"This has led to a steep rise in the prices of commodities, both agricultural products and minerals."

Cocoa prices increased threefold. The price of copper doubled. There was an almost double increase in the price of rubber and a 2.5 times increase in the price of palm oil.

Almost all countries were hard hit by the sharp rise in food prices.

As Singapore does not have a significant agricultural sector, it was affected by world prices for grains, mutton and beef, as well as 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,

But perhaps, it is worth reminding ourselves how fortunate we have been that, because of industrialisation 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.

[irp posts="62" name="When can you save for rainy days? Not when the rainy day is here."]

In conclusion to 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.

[irp posts="1316" name="Founder's Mindset and Inheritor's Mindset: What is Pritam's mindset?"]


On Key

Related Posts