21 May 2020 (12pm - 8pm)
REACH
[12:03 PM, 5/22/2020] : Dear Contributors, welcome back!
📢Topic📢
As we prepare for the safe re-opening if our economy, DPM Heng will make a ministerial statement on May 26 on further plans to help people and businesses.
On 28 May, the next Jobs Support Scheme payment will be disbursed to over 140,000 employers.
The third mask distribution will also commence next week, on May 26, with new masks that are more comfortable and with better filtration qualities.
How do you think we can work better together as a community to adhere to the safe distancing measures as we transition to Phase 1?
How can we continue to stay resilient as a community?
👉https://www.channelnewsasia.com/news/singapore/covid-19-dpm-heng-swee-keat-speech-help-businesses-individuals-12749402
👉https://www.straitstimes.com/singapore/residents-can-collect-improved-reusable-masks-in-three-week-national-exercise-from-may-26
👉https://www.channelnewsasia.com/news/singapore/covid-19-jobs-support-scheme-payout-4-billion-heng-swee-keat-12743136
👉Questions on what can/cannot be done on June 2?
https://www.straitstimes.com/singapore/restrictions-on-exercise-gatherings-still-in-place-after-june-1
---
[12:05 PM, 5/22/2020] ☸️ Danny 心:
Yesterday MTI Chan say that government will focus in reducing unemployment and prevent business closure in this 3 phases.
Suggest that:-
Each industry and business association should help their associate business setup ringfences to prevent infection and protect their customers and business partners from being infected.
This will help the government to decide whether to expedite the opening up of business for each respective industries.
Lena Wong
[12:08 PM, 5/22/2020] : Continue to WEAR MASK when we are out of home.
Rams
[12:10 PM, 5/22/2020] : Commit to the basic - maintain safe distance, wear mask, wash your hands with soap and water. Don't cost much but goes a long way. Cooperate with sda!
Rama
[12:13 PM, 5/22/2020] : About time
[12:13 PM, 5/22/2020] : Good
Ken
[12:13 PM, 5/22/2020] : I wonder how we control face to face meeting industry, like real estate, insurance, Tailor services, massage, TCM, clubs. Where they meet a wide range of people.
Inter business meetings, company training in common standards.
[12:13 PM, 5/22/2020] ☸️ Danny 心:
All these are practical ways that each industry come out with their own creative ways to protect their workers and their customers from infection.
And this will give confident to the government to allow their industry and their business to operate.
[12:18 PM, 5/22/2020] ☸️ Danny 心: Eg.
1. Workers wear face mask and face shield.
2. Use hand sanitizer in front of the customers before serving them.
3. Keep meeting short and concise.
Ken
[12:20 PM, 5/22/2020] : How to club in short and concise meeting 🤣
[12:20 PM, 5/22/2020] : Or drinking in bars
[12:21 PM, 5/22/2020] : FnB omakase might be a thing of the past 😭
[12:21 PM, 5/22/2020] ☸️ Danny 心:
Meant for insurance, tcm etc.
Not clubbing or drinking.
They got to think how to protect their customers and their workers before can open up.
[1:09 PM, 5/22/2020] ☸️ Danny 心:
The onus should be on each industry association to submit a detailed plan on how to keep their business going but protecting their workers, customers, business partners and public at large - before the government allow them to open up for business.
[1:12 PM, 5/22/2020] ☸️ Danny 心:
This will give the assurance to all the stakeholders that they are safe in buying their goods and services:-
1. Workers
2. Customers
3. Business partners
4. Public at large
[2:17 PM, 5/22/2020] ☸️ Danny 心:
Wearing a face mask and face shield
https://www.straitstimes.com/singapore/should-i-wear-a-face-mask-or-face-shield
REACH
[4:13 PM, 5/22/2020] : [Sent by Gov.sg – 22 May]
As of 12pm, MOH has preliminarily confirmed an additional 614 cases of COVID-19 infection in Singapore.
Majority are Work Permit holders residing in foreign worker dormitories.
Of the 614 cases, 4 are Singaporeans/PRs.
MOH will share further updates in its press release that will be issued later tonight.
go.gov.sg/moh22mayupdate
REACH
[4:16 PM, 5/22/2020] : 614 new Covid-19 cases in Singapore, taking total past 30,000
https://www.straitstimes.com/singapore/614-new-covid-19-cases-in-singapore-taking-total-past-30000?xtor=CS3-18&utm_source=STiPhone&utm_medium=share&utm_term=2020-05-22%2016%3A05%3A51
[4:23 PM, 5/22/2020] ☸️ Danny 心:
Luckily, only 4 SC PR.
Else opening up CB is a risk.
[4:36 PM, 5/22/2020] ☸️ Danny 心:
Government should consider making mandatory for those who jog, cycle, brisk walk or child below 2 years old to wear face shield rather than not wearing mask or anything at all for protection.
[4:37 PM, 5/22/2020] ☸️ Danny 心:
Local transmission is still lurking around and the dorm number are still high.
[4:40 PM, 5/22/2020] ☸️ Danny 心:
As long as anyone step outside the house, everyone must wear a protective tool.
---
Ben
[5:18 PM, 5/22/2020] : People haven't been wearing masks while exercising in the parks for 6 weeks and we haven't seen arise in cases, so it seems this is quite safe.
[5:19 PM, 5/22/2020] : But faceshield is a good idea if we do see an increase due to exercising in the park.
[5:19 PM, 5/22/2020] ☸️ Danny 心:
When more people congregate and when parks are released - any infected person will trigger a cluster.
[5:20 PM, 5/22/2020] ☸️ Danny 心:
We cannot take the risk of rolling back our economy because we are losing by the billions.
And we need to plug all potential risk.
Ben
[5:22 PM, 5/22/2020] : Plugging all potential risk means keeping the full circuit breaker. We should increase restrictions if there is evidence of transmission. Exercise in the park is not seen as a source of transmission.
[5:24 PM, 5/22/2020] ☸️ Danny 心:
Then take the risk for a cluster to trigger and then react to it.
Ben
[5:25 PM, 5/22/2020] : Opening the school would seem a far bigger risk, but we accept that.
[5:28 PM, 5/22/2020] ☸️ Danny 心:
Must as well open everything then.
If trigger a cluster, then close back again.
If these is the accepted approach.
For me I will like government to keep the face mask on when out of house.
And for those not wearing anything, wear at least a face shield.
Ben
[5:30 PM, 5/22/2020] : I agree with you about wearing masks. I don't agree with you about opening everything, we need a balanced approach.
[5:30 PM, 5/22/2020] ☸️ Danny 心:
Good I don't agree with opening everything too.
Ben
[5:31 PM, 5/22/2020] : 👍
Harry Tharan Krishnan
[1:54 PM, 5/22/2020] :
New Zealand discussing 'helicopter money' handouts to stimulate economy
https://www.channelnewsasia.com/news/business/new-zealand-discussing--helicopter-money--handouts-to-stimulate-economy-12758930
[5:49 PM, 5/22/2020] ☸️ Danny 心:
---
(1) Printing money or Quantitative Easing and giving citizens to spend to prop up the Economy - is not the right solution.
(2) Because as more money is printed - there will be too much money chasing after too few goods --- and this will lead to inflation.
eg. $10 to buy a chicken - will result in $100 to buy a chicken (as the moeny become devalued.
- and this mean if a person's wealth and house is worth $100,000 - with more money printed - the person's wealth is now worth $10,000.
(3) Though the devalued money will mean more competitive in export - as our goods produced cost less in exchange for currency of importing countries -- but when we import goods (where we import many food, raw materials, semi-finished goods --- our devalued money will mean we need to pay alot more - to buy these goods ---- and this will lead to imported inflation) --- causing our essential food and goods to be more expensive.
(4) Printing of money must be back by our increasing economic output, assets and wealth - not print to give out to the citizens to spend to prop up the Economy - but lead us into a financial crisis.
(5) What we need to do is to :-
- open the Economy step by step in a calibrated approach - to ensure all necessary health safety safeguard are put in place by each industry and business - to ensure infection won't flare up again, and if a cluster do flare up - are well contain within a small confine cluster - without causing cross infection into other clusters.
- when health safety safeguaurd are put in place by each industry and business, then open up --- and make the onus fall onto the business and industry that provide the goods and services - to ensure their stakeholders are protected from infection --- and their stakeholders should include workers, customers, business partners and the public at large.
- After taking care of the domestic economy, calibrated opening up of the external economy --- through mutual arrangement with other Countries to ensure health safety safeguard are in place - in travel, trade, business etc.
eg. test must be conducted on their respective countries before coming here.
wear face mask,
health check etc.
(6) Only economic activities such as government expenditure in construction, doemstic projects, business activities and trade --- are useful to grow the Economy and generate GDP.
Printing money - will devalue our National finance and cause our individual wealth to depreciate in values.
Rama
[6:07 PM, 5/22/2020] : Totally agreed.
Ben
[6:42 PM, 5/22/2020] +65 8481 6751: It doesn't actually work like that since we are not printing money.
Here's an explanation from an economist:
Quantitative easing (QE) is a very indirect method of printing money - and only in the broadest possible sense of “printing money”.
When newspapers write “printing money”, they almost never mean “printing” - as in producing nice colored pieces of paper (which in fact is not paper, but fabric or plastic … but I digress too much). In a relatively narrow sense “printing money” is increasing the volume of money in circulation, i.e. more electronic money. In a wider sense “printing money” is any type of expansionary monetary policy - any monetary policy intended to stimulate the economy, increase inflation and employment.
So, in the wide sense “printing money” includes cutting interest rates, decreasing reserve requirements, easing collateral requirements, forward guidance, and QE.
In a narrower sense, QE does not directly increase the volume of money in circulation. Most of QE leads to a chain of transactions when the reserves initially created by the central bank end up back in the central bank. The most obvious example is when the central bank buys securities from a domestic commercial bank - and the commercial bank keeps the extra reserves in its account with the central bank (i.e. voluntary reserves increase). Another example is when the central bank buys the securities from a trader, and the trader has an account in a domestic commercial bank - thus the reserves come back to the central bank in two steps. If the central bank buys securities from a foreign person, either the extra reserves stay abroad (thus no change to domestic money supply) or they come back to the central bank in several more steps.
QE eventually leads to increase in money supply, but it takes some time and the proportion is relatively small. QE initially changes the balance of assets held by private sector, which motivates banks to lend more, or to more risky borrowers. Since central banks resort to QE only in times when very few people want to borrow more, increasing the motivation for banks to lend more helps only a little - there is still the missing motivation among potential borrowers. That is why most QE programs are so large - we need a really huge amount of QE to increase lending just a little … and increase employment and inflation in the end.
[6:46 PM, 5/22/2020] ☸️ Danny 心:
If you read the news article about new Zealand, it say printing physical money.
I added quantitative easing, another way to increase money supply into the discussion.
So you mean new Zealand is not printing physical money?
Blue and White Flag guy
[6:49 PM, 5/22/2020] +65 9689 8146: Someone second Zen beng liao
Ben
[6:42 PM, 5/22/2020] +65 8481 6751: It doesn't actually work like that since we are not printing money.
Here's an explanation from an economist:
Quantitative easing (QE) is a very indirect method of printing money - and only in the broadest possible sense of “printing money”.
When newspapers write “printing money”, they almost never mean “printing” - as in producing nice colored pieces of paper (which in fact is not paper, but fabric or plastic … but I digress too much). In a relatively narrow sense “printing money” is increasing the volume of money in circulation, i.e. more electronic money. In a wider sense “printing money” is any type of expansionary monetary policy - any monetary policy intended to stimulate the economy, increase inflation and employment.
So, in the wide sense “printing money” includes cutting interest rates, decreasing reserve requirements, easing collateral requirements, forward guidance, and QE.
In a narrower sense, QE does not directly increase the volume of money in circulation. Most of QE leads to a chain of transactions when the reserves initially created by the central bank end up back in the central bank. The most obvious example is when the central bank buys securities from a domestic commercial bank - and the commercial bank keeps the extra reserves in its account with the central bank (i.e. voluntary reserves increase). Another example is when the central bank buys the securities from a trader, and the trader has an account in a domestic commercial bank - thus the reserves come back to the central bank in two steps. If the central bank buys securities from a foreign person, either the extra reserves stay abroad (thus no change to domestic money supply) or they come back to the central bank in several more steps.
QE eventually leads to increase in money supply, but it takes some time and the proportion is relatively small. QE initially changes the balance of assets held by private sector, which motivates banks to lend more, or to more risky borrowers. Since central banks resort to QE only in times when very few people want to borrow more, increasing the motivation for banks to lend more helps only a little - there is still the missing motivation among potential borrowers. That is why most QE programs are so large - we need a really huge amount of QE to increase lending just a little … and increase employment and inflation in the end.
[6:46 PM, 5/22/2020] ☸️ Danny 心:
If you read the news article about new Zealand, it say printing physical money.
I added quantitative easing, another way to increase money supply into the discussion.
So you mean new Zealand is not printing physical money?
Blue and White Flag guy
[6:49 PM, 5/22/2020] : Someone second Zen beng liao
Ben
[6:52 PM, 5/22/2020] : Correct, not literally printing money. Usually it's Central Bank and Gov using QE to increase supply not increasing capital. Either way, the example about people losing 90% of their waelth due to increased money supply is not correct.
Danny
[6:53 PM, 5/22/2020]
CQ
[5:50 PM, 5/22/2020] : Thing is that with every opening and closing, there'll be a period of adaptation like how long it took for us to finally fine tune how to manage crowds and getting people to understand the gravity of this. So I'd rather that we take things step by step in a measured approach, than to move hastily and have a bigger problem on our hands.
[5:54 PM, 5/22/2020] ☸️ Danny 心:
Agree.
The phase approach is a good approach.
But all health safety safeguard must be put in place by every industry and every business that open up.
Hi
[6:28 PM, 5/22/2020] : 😷 All pre-school & primary school students in S'pore will be given face shields by June 8, 2020.
➡️ https://bit.ly/36sPuJt
---
(1) Printing money or Quantitative Easing and giving citizens to spend to prop up the Economy - is not the right solution.
(2) Because as more money is printed - there will be too much money chasing after too few goods --- and this will lead to inflation.
eg. $10 to buy a chicken - will result in $100 to buy a chicken (as the moeny become devalued.
- and this mean if a person's wealth and house is worth $100,000 - with more money printed - the person's wealth is now worth $10,000.
(3) Though the devalued money will mean more competitive in export - as our goods produced cost less in exchange for currency of importing countries -- but when we import goods (where we import many food, raw materials, semi-finished goods --- our devalued money will mean we need to pay alot more - to buy these goods ---- and this will lead to imported inflation) --- causing our essential food and goods to be more expensive.
(4) Printing of money must be back by our increasing economic output, assets and wealth - not print to give out to the citizens to spend to prop up the Economy - but lead us into a financial crisis.
(5) What we need to do is to :-
- open the Economy step by step in a calibrated approach - to ensure all necessary health safety safeguard are put in place by each industry and business - to ensure infection won't flare up again, and if a cluster do flare up - are well contain within a small confine cluster - without causing cross infection into other clusters.
- when health safety safeguaurd are put in place by each industry and business, then open up --- and make the onus fall onto the business and industry that provide the goods and services - to ensure their stakeholders are protected from infection --- and their stakeholders should include workers, customers, business partners and the public at large.
- After taking care of the domestic economy, calibrated opening up of the external economy --- through mutual arrangement with other Countries to ensure health safety safeguard are in place - in travel, trade, business etc.
eg. test must be conducted on their respective countries before coming here.
wear face mask,
health check etc.
(6) Only economic activities such as government expenditure in construction, doemstic projects, business activities and trade --- are useful to grow the Economy and generate GDP.
Printing money - will devalue our National finance and cause our individual wealth to depreciate in values.
Rama
[6:07 PM, 5/22/2020] : Totally agreed.
Ben
[6:42 PM, 5/22/2020] +65 8481 6751: It doesn't actually work like that since we are not printing money.
Here's an explanation from an economist:
Quantitative easing (QE) is a very indirect method of printing money - and only in the broadest possible sense of “printing money”.
When newspapers write “printing money”, they almost never mean “printing” - as in producing nice colored pieces of paper (which in fact is not paper, but fabric or plastic … but I digress too much). In a relatively narrow sense “printing money” is increasing the volume of money in circulation, i.e. more electronic money. In a wider sense “printing money” is any type of expansionary monetary policy - any monetary policy intended to stimulate the economy, increase inflation and employment.
So, in the wide sense “printing money” includes cutting interest rates, decreasing reserve requirements, easing collateral requirements, forward guidance, and QE.
In a narrower sense, QE does not directly increase the volume of money in circulation. Most of QE leads to a chain of transactions when the reserves initially created by the central bank end up back in the central bank. The most obvious example is when the central bank buys securities from a domestic commercial bank - and the commercial bank keeps the extra reserves in its account with the central bank (i.e. voluntary reserves increase). Another example is when the central bank buys the securities from a trader, and the trader has an account in a domestic commercial bank - thus the reserves come back to the central bank in two steps. If the central bank buys securities from a foreign person, either the extra reserves stay abroad (thus no change to domestic money supply) or they come back to the central bank in several more steps.
QE eventually leads to increase in money supply, but it takes some time and the proportion is relatively small. QE initially changes the balance of assets held by private sector, which motivates banks to lend more, or to more risky borrowers. Since central banks resort to QE only in times when very few people want to borrow more, increasing the motivation for banks to lend more helps only a little - there is still the missing motivation among potential borrowers. That is why most QE programs are so large - we need a really huge amount of QE to increase lending just a little … and increase employment and inflation in the end.
[6:46 PM, 5/22/2020] ☸️ Danny 心:
If you read the news article about new Zealand, it say printing physical money.
I added quantitative easing, another way to increase money supply into the discussion.
So you mean new Zealand is not printing physical money?
Blue and White Flag guy
[6:49 PM, 5/22/2020] +65 9689 8146: Someone second Zen beng liao
Ben
[6:42 PM, 5/22/2020] +65 8481 6751: It doesn't actually work like that since we are not printing money.
Here's an explanation from an economist:
Quantitative easing (QE) is a very indirect method of printing money - and only in the broadest possible sense of “printing money”.
When newspapers write “printing money”, they almost never mean “printing” - as in producing nice colored pieces of paper (which in fact is not paper, but fabric or plastic … but I digress too much). In a relatively narrow sense “printing money” is increasing the volume of money in circulation, i.e. more electronic money. In a wider sense “printing money” is any type of expansionary monetary policy - any monetary policy intended to stimulate the economy, increase inflation and employment.
So, in the wide sense “printing money” includes cutting interest rates, decreasing reserve requirements, easing collateral requirements, forward guidance, and QE.
In a narrower sense, QE does not directly increase the volume of money in circulation. Most of QE leads to a chain of transactions when the reserves initially created by the central bank end up back in the central bank. The most obvious example is when the central bank buys securities from a domestic commercial bank - and the commercial bank keeps the extra reserves in its account with the central bank (i.e. voluntary reserves increase). Another example is when the central bank buys the securities from a trader, and the trader has an account in a domestic commercial bank - thus the reserves come back to the central bank in two steps. If the central bank buys securities from a foreign person, either the extra reserves stay abroad (thus no change to domestic money supply) or they come back to the central bank in several more steps.
QE eventually leads to increase in money supply, but it takes some time and the proportion is relatively small. QE initially changes the balance of assets held by private sector, which motivates banks to lend more, or to more risky borrowers. Since central banks resort to QE only in times when very few people want to borrow more, increasing the motivation for banks to lend more helps only a little - there is still the missing motivation among potential borrowers. That is why most QE programs are so large - we need a really huge amount of QE to increase lending just a little … and increase employment and inflation in the end.
[6:46 PM, 5/22/2020] ☸️ Danny 心:
If you read the news article about new Zealand, it say printing physical money.
I added quantitative easing, another way to increase money supply into the discussion.
So you mean new Zealand is not printing physical money?
Blue and White Flag guy
[6:49 PM, 5/22/2020] : Someone second Zen beng liao
Ben
[6:52 PM, 5/22/2020] : Correct, not literally printing money. Usually it's Central Bank and Gov using QE to increase supply not increasing capital. Either way, the example about people losing 90% of their waelth due to increased money supply is not correct.
Danny
[6:53 PM, 5/22/2020]
Ben
[7:03 PM, 5/22/2020] : You're comparing Venezualan economy during the 70's oil crises with NZ and Singapore today?
[7:03 PM, 5/22/2020] ☸️ Danny 心:
Not discussing this topic.
[7:53 PM, 5/22/2020] ☸️ Danny 心:
How Does Quantitative Easing Affect Currency Value
There has been two schools of thoughts; one that states that quantitative easing affects currency value and the other that denies the later. To better understand how and whether quantitative easing (referred as QE in short) has an effect on currency value, lets look at what QE is;
Quantitative easing is a means used by central banks in an effort to increase the amount of money supply in the economy. This is mainly done by purchasing government bonds and other financial products in the open market thus infusing money into the economy. This is usually done to cure recession by boosting market stability and liquidity. Simply, quantitative easing is one of the expansionary monetary policies used by central banks to boost the economy.
There are two ways that quantitative easing will affect currency value and lead to its depreciation.
1. Lower Interest Rates;
As we know, increase in supply leads to decrease in demand in a normal market. Hence, an increase of money supply in the economy decreases the cost of money i.e Interest rates.
interest rates decrease
A decrease in interest rates will make interest yielding securities in a particular country unattractive. Hence, not only will it be unattractive for foreigners to save money that country’s banks, they will also sell any interest yielding securities they hold to safeguard their investment. By selling that particular countries currency for other foreign currencies, the value of that currency depreciates.
2. Inflation;
Quantitative easing, being an expansionary policy, adds to the money supply circulating in the economy. This in turn means there will be too much money chasing the very same quantity of goods as before. Companies will in turn respond to this increase in demand by raising the prices of goods.
This increase in prices makes domestic goods less competitive in the international market and hence export demand falls. A fall in export demand in turn translates to a fall in the country’s currency hence its depreciation.
Case Study;
The US Federal Reserve began its quantitative easing in 2009 by buying securities in the open market. A month after QE1 announcement, the USD index made its biggest monthly decline (a 10% deep). Below is the Fed’s implementation of quantitative easing;
Below shows the decline of the dollar against the yen and euro after the Federal Reserve announced its quantitative easing agenda;
From the above, we can agree that quantitative easing affects the value of a currency, and more so; causes its decline.
Conclusion;
In normal circumstances, we would expect quantitative easing to affect the value of a currency by causing it to depreciate since it causes an increase in the amount of money circulating in the economy. This was evident when attempted by the US federal reserve.
Risks of Quantitative Easing
Quantitative easing has come under fire for multiple reasons:
It drives inflation much higher. This is the biggest concern around quantitative easing. As more money circulates through the economy, prices rise. Why? While the supply of money increases, the supply of goods remains the same. Thus, the competition for each good increases, leading to increased prices, which in turn leads to inflation. Excessive inflation leads to distortion of prices and incomes, and can cause an economy to operate inefficiently.
It creates havoc with international trade. Newly printed money can be used by the government and consumers to import new goods and services from other countries. These goods and services are more or less coming in for free. Sounds like a great deal, right? The problem is that sooner or later other countries end up getting sick of exchanging goods and services for what they feel are worthless sheets of paper. In other words, the value of the importer’s currency decreases, which can discourage exporters. For example, China stopped exporting valuable minerals to the U.S. due to its quantitative easing program.
Threat to the U.S. dollar. Many countries get frustrated with attempts at currency manipulation like quantitative easing. They feel that these practices reflect an inability by the country to generate real growth and to honor debts. For example, other countries have become weary of lending the U.S. more money. Also, the status of the U.S. dollar as the world reserve currency is in jeopardy, likely because of quantitative easing.
Benefits don’t outlast QE programs. When the central bank stops printing money, the recovery often gets put on hold, or worse, begins to reverse. Although the hope is that new consumer confidence will inspire a real recovery, many feel these programs are only a short-term fix. This effect is exhibited by the fact that stock markets often fall when it is announced or speculated that the quantitative easing program will be brought to an end.
Encourages debt. Another key worry about quantitative easing is that the increased money supply and low interest rates encourage additional borrowing by both consumers and businesses. While some debt can help stimulate an economy, wanton loans and excessive debt can further exacerbate an already fragile one. Moreover, quantitative easing can lead to an increased government deficit as was the case with the U.S. in 2010 when it actually reached its debt ceiling.
While quantitative easing programs can fuel the economy, they can also dig a country into a deeper hole. The key to a successful QE program is to strategically implement it just long enough to promote real and lasting improvement. Unfortunately, the ability to do so is much easier said than done.
[7:03 PM, 5/22/2020] : You're comparing Venezualan economy during the 70's oil crises with NZ and Singapore today?
[7:03 PM, 5/22/2020] ☸️ Danny 心:
Not discussing this topic.
[7:53 PM, 5/22/2020] ☸️ Danny 心:
How Does Quantitative Easing Affect Currency Value
There has been two schools of thoughts; one that states that quantitative easing affects currency value and the other that denies the later. To better understand how and whether quantitative easing (referred as QE in short) has an effect on currency value, lets look at what QE is;
Quantitative easing is a means used by central banks in an effort to increase the amount of money supply in the economy. This is mainly done by purchasing government bonds and other financial products in the open market thus infusing money into the economy. This is usually done to cure recession by boosting market stability and liquidity. Simply, quantitative easing is one of the expansionary monetary policies used by central banks to boost the economy.
There are two ways that quantitative easing will affect currency value and lead to its depreciation.
1. Lower Interest Rates;
As we know, increase in supply leads to decrease in demand in a normal market. Hence, an increase of money supply in the economy decreases the cost of money i.e Interest rates.
interest rates decrease
A decrease in interest rates will make interest yielding securities in a particular country unattractive. Hence, not only will it be unattractive for foreigners to save money that country’s banks, they will also sell any interest yielding securities they hold to safeguard their investment. By selling that particular countries currency for other foreign currencies, the value of that currency depreciates.
2. Inflation;
Quantitative easing, being an expansionary policy, adds to the money supply circulating in the economy. This in turn means there will be too much money chasing the very same quantity of goods as before. Companies will in turn respond to this increase in demand by raising the prices of goods.
This increase in prices makes domestic goods less competitive in the international market and hence export demand falls. A fall in export demand in turn translates to a fall in the country’s currency hence its depreciation.
Case Study;
The US Federal Reserve began its quantitative easing in 2009 by buying securities in the open market. A month after QE1 announcement, the USD index made its biggest monthly decline (a 10% deep). Below is the Fed’s implementation of quantitative easing;
Below shows the decline of the dollar against the yen and euro after the Federal Reserve announced its quantitative easing agenda;
From the above, we can agree that quantitative easing affects the value of a currency, and more so; causes its decline.
Conclusion;
In normal circumstances, we would expect quantitative easing to affect the value of a currency by causing it to depreciate since it causes an increase in the amount of money circulating in the economy. This was evident when attempted by the US federal reserve.
Risks of Quantitative Easing
Quantitative easing has come under fire for multiple reasons:
It drives inflation much higher. This is the biggest concern around quantitative easing. As more money circulates through the economy, prices rise. Why? While the supply of money increases, the supply of goods remains the same. Thus, the competition for each good increases, leading to increased prices, which in turn leads to inflation. Excessive inflation leads to distortion of prices and incomes, and can cause an economy to operate inefficiently.
It creates havoc with international trade. Newly printed money can be used by the government and consumers to import new goods and services from other countries. These goods and services are more or less coming in for free. Sounds like a great deal, right? The problem is that sooner or later other countries end up getting sick of exchanging goods and services for what they feel are worthless sheets of paper. In other words, the value of the importer’s currency decreases, which can discourage exporters. For example, China stopped exporting valuable minerals to the U.S. due to its quantitative easing program.
Threat to the U.S. dollar. Many countries get frustrated with attempts at currency manipulation like quantitative easing. They feel that these practices reflect an inability by the country to generate real growth and to honor debts. For example, other countries have become weary of lending the U.S. more money. Also, the status of the U.S. dollar as the world reserve currency is in jeopardy, likely because of quantitative easing.
Benefits don’t outlast QE programs. When the central bank stops printing money, the recovery often gets put on hold, or worse, begins to reverse. Although the hope is that new consumer confidence will inspire a real recovery, many feel these programs are only a short-term fix. This effect is exhibited by the fact that stock markets often fall when it is announced or speculated that the quantitative easing program will be brought to an end.
Encourages debt. Another key worry about quantitative easing is that the increased money supply and low interest rates encourage additional borrowing by both consumers and businesses. While some debt can help stimulate an economy, wanton loans and excessive debt can further exacerbate an already fragile one. Moreover, quantitative easing can lead to an increased government deficit as was the case with the U.S. in 2010 when it actually reached its debt ceiling.
While quantitative easing programs can fuel the economy, they can also dig a country into a deeper hole. The key to a successful QE program is to strategically implement it just long enough to promote real and lasting improvement. Unfortunately, the ability to do so is much easier said than done.
CQ
[5:50 PM, 5/22/2020] : Thing is that with every opening and closing, there'll be a period of adaptation like how long it took for us to finally fine tune how to manage crowds and getting people to understand the gravity of this. So I'd rather that we take things step by step in a measured approach, than to move hastily and have a bigger problem on our hands.
[5:54 PM, 5/22/2020] ☸️ Danny 心:
Agree.
The phase approach is a good approach.
But all health safety safeguard must be put in place by every industry and every business that open up.
Hi
[6:28 PM, 5/22/2020] : 😷 All pre-school & primary school students in S'pore will be given face shields by June 8, 2020.
➡️ https://bit.ly/36sPuJt
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