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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. I'm Michael Thompson

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Speaker 1: and hello Sean Aylmer.

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Speaker 2: Hello Michael, Sean.

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Speaker 1: Today's question comes from Lynn and I love getting questions,

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Speaker 1: and this one's coming via our website Fearangreed dot com.

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Speaker 1: Toda you, and she says, high Team, Fear and Greed.

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Speaker 1: This is I'm going to read this bit too because

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Speaker 1: I quite like it because it praises us. Sean, She says,

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Speaker 1: this is a rather long question, so I hold a

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Speaker 1: less than fifty percent hope of it being answered on air. Well,

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Speaker 1: but I'm giving it a shot because I really like

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Speaker 1: the way you explain complex concepts simply. Are you feeling

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Speaker 1: no under pressure? No pressure? Here he goes. Lynn says,

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Speaker 1: it's commonly said that the Reserve Bank's use of interest

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Speaker 1: rates for monetary policy is a blunt tool which affects

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Speaker 1: mortgage holders disproportionately. All right, we've discussed that before. Lynn says,

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Speaker 1: I I've recently heard of an alternative. The Monetary Authority

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Speaker 1: of Singapore manages monetary policy not by using interest rates. Instead,

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Speaker 1: it lets the Singapore dollar rise or fall against the

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Speaker 1: currencies of its main trading partners within an undisclosed trading

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Speaker 1: band known as the Singapore Dollar Nominal Effective exchange rate.

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Speaker 1: And Linn's question here is why don't more reserve banks

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Speaker 1: do this.

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Speaker 2: It's a great question because Singapore is fascinating on this.

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Speaker 2: The only thing, Lynn, I think it is a disclosed

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Speaker 2: rather than an undisclosed trading band. That would be the

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Speaker 2: only common I would say on the question. So central

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Speaker 2: banks around the world us interest rates to impact the economy.

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Speaker 2: What you do is you shift the official rate, the

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Speaker 2: cash rate in Australia, and you shift it up. That's

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Speaker 2: the base rate that's used for a bank to borrow

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Speaker 2: money off another bank. But on top of that there's

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Speaker 2: a risk. So you know, homelands has a certain risk

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Speaker 2: might be x. Credit cards might be two x. Buying

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Speaker 2: cryptocurrencies might be three x. So what it is you're

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Speaker 2: paying the cash right plus the risk premium. As the

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Speaker 2: cash rate goes up, all rates go up, and that's

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Speaker 2: what the reserve bank does to kind of take some

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Speaker 2: of the oomph out of the economy or put some

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Speaker 2: womph back into the economies. That's how interest rates Singapore

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Speaker 2: is really cool. Because it is such an economy so

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Speaker 2: reliant on international trade, the monetary authority of Singapore can

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Speaker 2: just shift the currency and have an impact on what's

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Speaker 2: happening in the local economy. So let me think about this.

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Speaker 2: The Singapore dollar has an effective exchange rate which they

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Speaker 2: strengthen all weaken against those of its main trading partners.

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Speaker 2: Singapore is a small economy, totally reliant on trade. You know,

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Speaker 2: you can't grow a lot of stuff in Singapore simply

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Speaker 2: because it's too small. So in gross exports and imports

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Speaker 2: of Singapore are about three times the level of its GDP.

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Speaker 2: So everything it does is about trade. Like forty cents

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Speaker 2: in every Singapore dollar is spent on imports.

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Speaker 1: And it's big partners of what kind of Malaysia and

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Speaker 1: looking this up the US.

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Speaker 2: Yeah, so the US is a big partner in region

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Speaker 2: where it sits okay yep. So that means because there's

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Speaker 2: such huge trade flows in Singapore, you don't need interest rates.

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Speaker 2: The currency is actually more effective. So you shift the

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Speaker 2: currency and you make imports more expensive. That's actually a

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Speaker 2: way of dulling economic growth. You shift the current. See

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Speaker 2: you make inputs cheaper, it actually boosts economic growth. The

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Speaker 2: reason it worse than Singapore and it doesn't work almost

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Speaker 2: anywhere else is because it is so trade related, so

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Speaker 2: trade reliant, all.

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Speaker 1: Right, whereas in Australia there's too many other kind of factors,

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Speaker 1: for instance, that would that also affected.

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Speaker 2: So yeah, so yeah, that's exactly right. I mean, we're

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Speaker 2: nowhere near is trade reliant as Singapore. I mean we

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Speaker 2: can grow our own food, we can create our own energy,

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Speaker 2: all those sorts of things, whereas basically Singapore has to

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Speaker 2: import and export all sorts of stuff.

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Speaker 1: Okay, God, that's a good question.

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Speaker 2: Though. It's a great question because I kind of knew

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Speaker 2: about that, but I didn't know a lot about it.

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Speaker 2: And it's really fascinating how Singapore runs its monetary policy.

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Speaker 1: It's different, and it's really just very much because of

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Speaker 1: its because it's really quite unique circumstances.

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Speaker 2: Yes, yes, yes, I'd say so Okay, some listeners will say, oh,

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Speaker 2: but what about and maybe there are other countries out

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Speaker 2: there that do, but I'm not aware of them.

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Speaker 1: No, And we would welcome that feedback absolutely, I would

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Speaker 1: love to hear that, and just like we welcome questions

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Speaker 1: like this one from Lynn. So thank you Lynn for

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Speaker 1: getting in touch with your question and thank you Sean

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Speaker 1: for answering it. Most welcome Michael, and if you've got

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Speaker 1: your own question to ask, then please do what Lynn did.

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Speaker 1: Head to the website Fear and Greed dot com, DoD

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Speaker 1: a you, or jump onto any of the social media

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Speaker 1: platforms we're big on LinkedIn, Instagram, Facebook and the rest.

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Speaker 1: It can send it on through there and we will

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Speaker 1: get to it as soon as is humanly possible. I'm

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Speaker 1: Michael Thompson. This is as Fear and Greed