Singapore's Exchange Rate Policies: Some Implementation Issues
The Singapore Economic Review, Vol. 52, No. 3, pp. 445-458, 2007
Posted: 7 Oct 2010
Date Written: October 7, 2010
Reflecting the small, open nature of its economy, Singapore has adopted an exchange rate centered monetary policy framework since 1981. The exchange rate regime in Singapore is an intermediate regime that follows the basket-band-crawl system. With this managed float system, the MAS had successfully deterred speculators from attacking the domestic currency for most of the past three decades. At the same time, flexibility accorded by the managed float system aided Singapore in escaping from the crisis relatively unscathed. In order to advance our understanding of the hitherto successful operation of Singapore’s exchange rate policy, we examine the following three aspects of its implementation: (i) the use of the exchange rate instead of the interest rate as key monetary policy instrument; (ii) the management of the currency basket in terms of foreign exchange intervention operations; and (iii) regulating the level of domestic liquidity alongside exchange rate policy. This paper also provides some insights on the challenges ahead that potentially face policy makers when implementing Singapore exchange rate policy.
Keywords: exchange rate targeting, intervention operations, domestic liquidity
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