The PAP government compensates foreigners for inflation when they invest in Singapore government bonds, but did not compensate Singaporeans for inflation when the MOF took in their CPF money via SSGS.
Singaporeans are therefore short-changed by the PAP for giving them a negative real yield on their CPF savings.
How do we end up in this situation?
Unlike other major economies which use interest-rate policy to ease/tighten monetary conditions, the MAS use exchange-rate policy to control monetary conditions: eg the MAS would maintain the “modest and gradual appreciation” stance of the SGD NEER (nominal effective exchange rate) by lowering/raising the steepness of the policy slope or change the centre or width of the policy band–depending on the state of the economy or the pace of inflation.
For simplicity: Let’s say inflation rises from 1.0% to 2.5%. The MAS can increase the slope from 1.0% to 2.5% or raise the centre of the policy band to guide a faster appreciation of the Singapore dollar, eg by 2.5% in a year. That means a foreign investor earns the nominal yield on the bond, say 1.5%, plus the 2.5% exchange gain, for a total of 4.0%–the extra 2.5% to compensate for inflation.
But there’s no exchange gain for Singaporean CPF members, as they are locals investing in Singapore dollar-denominated bonds.
For local investors in Singapore government bonds to be fairly treated like the foreigners in terms of yield compensation, the mechanism of MAS monetary policy must change from exchange-rate policy to interest-rate policy–just as how other major developed-market economies conduct their policies.
MAS Monetary Policy Is Culprit