MAS

The balance of payment, current account and capital account are tied together by an accounting identity. Current account on one side and the capital and financial accounts on the other side should balance each other out due to the double entry of each transaction. For instance, if a country has a positive capital and financial accounts, it will have a current account deficit - because the debit is more than the credit. It means that this country is borrowing and using other countries savings to meet its local investment and consumption demands. In contrast, if a country has a negative capital and financial accounts, it will have a current account surplus, because the credit is more than the debit. It means that this country is using its saving for investing.
In Singapore, the government is heavily managed the country’s economy. It promotes high levels of savings. Also, the Monetary Authority of Singapore focuses on accumulating foreign reserves. Consequently, Singapore became a net creditor to other countries. It has a large current account surplus and saving accumulation in excess of domestic investment demand, which lead to produce a long-term real appreciation of the SGD.
2. What is a real exchange rate? What determines real exchange rates in the long-run?
Real Exchange Rate = Nominal Exchange Rate - Inflation
It’s the ratio at which any country’s own currency is equivalent to other currencies in terms of purchasing power. It discounts inflation from the nominal interest rate. It also provides a better measurement of countries exchange rates.
The Monetary Authority of Singapore focused mainly on inflation and didn’t use exchange rate as a competitive tool. Therefore, Singaporean companies had to find its way in competing with foreign producers without having unemployment problem.