SINGAPORE, May 31 — Other than knee-jerk reactions in the financial markets, economists said that there would likely be no short-term impact on Singapore for being on the United States’ watch list for currency practices.

Eight other nations — China, Germany, Ireland, Italy, Japan, Malaysia, South Korea and Vietnam — are on the monitoring list, based on the US Treasury’s latest twice-yearly report to the US Congress.

Selena Ling, OCBC Bank’s head of treasury research and strategy, said what it does imply is that Singapore may be more heavily scrutinised by the US, even if the countries are not outrightly being accused of being a currency manipulator.

In a note on Wednesday (May 29), OCBC said: "The report also stated that any economy added to the monitoring list will remain there for at least two consecutive reports to ensure any improvement is durable and not due to temporary factors.

"This means that Singapore, like the other new additions to the list, will probably stay there until the next report due later this year.” 

Responding to the development, the Monetary Authority of Singapore (MAS) stated that it does not manipulate the Singapore dollar for export advantage, or to achieve a current account surplus.

It also said that its monetary policy framework, which is centred on the exchange rate, has always been aimed at ensuring medium-term price stability, "and will continue to do so”.

"MAS does not and cannot use the exchange rate to gain an export advantage or achieve a current account surplus. A deliberate weakening of the Singapore dollar would cause inflation to spike and compromise MAS’ price stability objective,” the central bank said.

TODAY breaks down the rationale for setting up the watch list and why Singapore is on it.

What is the watch list about?

American news site CNBC reported that a 1988 law requires the US Treasury Department to report to the US Congress every six months on whether any countries are manipulating their currencies to gain trade advantages over the US.

If deemed to be a currency manipulator, US could impose trade sanctions.

Simply put, it means that a country is artificially weakening its own currency by selling its own currency in exchange for a foreign currency, usually the US dollar. This would have the effect of making its own exports cheaper, thereby gaining an unfair trade advantage over another country’s exports.

US had accused three economies of being currency manipulators in the past, the latest being China 25 years ago.

Japan was stamped with that label in 1988 and Taiwan, in 1988 and 1992.

Why is Singapore on the list?

There are three criteria the US Treasury looks at in placing a country on the watch list: