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2020 | OriginalPaper | Buchkapitel

6. Monetary Policy Implementation in Singapore

verfasst von : Hwee Kwan Chow, Fot Chyi Wong

Erschienen in: Monetary Policy Implementation in East Asia

Verlag: Springer International Publishing

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Abstract

Singapore’s monetary policy is centred on the management of the Singapore dollar exchange rate against a trade-weighted basket of currencies of its major trading partners. The Monetary Authority of Singapore (MAS) manages the Singapore dollar exchange rate within an undisclosed band by intervening in the foreign exchange market as necessary through the purchase and sale of the Singapore dollar against the US dollar. In the context of a small open economy, the choice of the exchange rate as an instrument of monetary policy implies that the domestic interest rate is endogenous. As such, MAS’ money-market operations are aimed at ensuring adequate liquidity in the banking system to meet the demand of banks for reserves both for the statutory reserve requirement as well as for the settlement of interbank transactions. Given Singapore’s status as an international financial centre and the attendant high degree of capital mobility, monetary policy operations in Singapore—involving foreign exchange interventions and money-market operations—are not without their challenges. This chapter discusses the key features in the market mechanisms and operating procedures that enhance the effective implementation of monetary policy operations in Singapore.

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Vorheriges Kapitel Taiwan’s Exchange-Rate Policy and Its Current Challenges

Nächstes Kapitel The Asset Purchase Programmes of the ESCB in the Courts

Chow (2005) shows through a monetary VAR model that the exchange rate plays a much bigger role than the interest rate as a source of macroeconomic fluctuations in Singapore. Furthermore, Chow et al. (2014) uses a DSGE-VAR model to show the exchange rate system has a comparative advantage over Taylor rule in terms of lowering inflation volatility as export price shocks are a major source of Singapore’s output volatility.

Neither the constituent currencies nor their assigned weights in the basket are publicly disclosed, in order to avoid destabilising speculation. Having some constructive ambiguity would ensure that currency speculators do not have a one-way bet on the Singapore dollar as it approaches the upper or lower band limits. This is particularly important, as speculative pressures tend to build up quickly near the band limits, thereby hampering the effectiveness in foreign exchange interventions (see Chiu 2003; Fernholz 2015, among others).

Each Singapore dollar currency note in circulation must be at least 100% backed by foreign assets under the Currency Act. When the stock of Singapore currency notes in MAS’ currency holding is above (below) the desired level, the MAS will remove (add) currency notes from (into) circulation and simultaneously transfer an equivalent amount of foreign currency at prevailing exchange rates from (to) the Currency Fund.

Despite its persistent budget surpluses, the Singapore government issues SGS bills and bonds to meet banks’ demand for a safe and liquid asset. Moreover, the SGS serve the important purpose of establishing a viable and liquid benchmark yield curve for the pricing of corporate bonds.

Both employees and employers are required to contribute a certain percentage of the employees’ income to the CPF. Funds are disbursed to members by the CPF Board under various withdrawal schemes.

The budget surpluses and positive net contribution to CPF (contributions net of withdrawals) in the past and present exert contractionary effect on the liquidity in the economy which, if not countered, would put upward pressure of the Singapore dollar (Chow 2017). These have therefore necessitated MAS to “lean against the wind” by intervening in the foreign exchange market to moderate the appreciation of the Singapore dollar.

Asher, M. G., Bali, A. S., & Kwan, Y. K. (2015). Public financial management in Singapore: Key characteristics and prospects. Singapore Economic Review, 60(3), 1550032 (18 pages).

Chiu, P. (2003). Transparency versus constructive ambiguity in foreign exchange intervention. BIS Working Papers No. 144, Bank for International Settlements.

Chow, H. K. (2005). A VAR analysis of singapore’s monetary transmission mechanism. In T. H. Winston Koh & R. S. Mariano (Eds.), The Economic Prospects of Singapore (pp. 274–298). Singapore: Addison Wesley.

Chow, H. K., Lim, G. C., & McNelis, P. (2014). Monetary regime choice in Singapore: Would a Tayor rule outperform exchange-rate management? Journal of Asian Economics, 30(1), 63–81.CrossRef

Chow, H. K. (2017). Domestic liquidity conditions and monetary policy in Singapore. In F. Rovekamp, M. Balzand, & H. G. Hilpert (Eds.),Cash in East Asia (pp. 65–76). Springer: Cham.

Fernholz, R. T. (2015). Exchange rate manipulation and constructive ambiguity. International Economic Review, 56(4), 1323–1348.CrossRef

Khor H. E., Robinson, E. & Lee, J. (2004). Managed floating and intermediate exchange rate systems: The Singapore experience. MAS Staff Paper No. 37.

Monetary Authority of Singapore. (2009). Monetary policy statement on 14 April 2009. Macroeconomic Review, Volume VIII, Issue 1, April.

Monetary Authority of Singapore. (2010). Monetary policy statement on 14 April 2010. Macroeconomic Review, Volume IX, Issue 1, April.

Monetary Authority of Singapore. (2012). Singapore’s bond market guide. MAS Monograph.

Monetary Authority of Singapore. (2013). Monetary policy operations in Singapore. MAS Monograph.

Obstfeld, M., Shambaugh, J. C., & Taylor, A. M. (2004). The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility. Mimeo: University of California, Berkeley, Dartmouth College, March.CrossRef

Wilson, P. (2015). Monetary policy and financial sector development. Singapore Economic Review, 60 (3), 1550031 (25 pages).

Titel: Monetary Policy Implementation in Singapore
verfasst von: Hwee Kwan Chow
Fot Chyi Wong
Verlag: Springer International Publishing
Buch: Monetary Policy Implementation in East Asia
Print ISBN: 978-3-030-50297-3

Electronic ISBN: 978-3-030-50298-0

Copyright-Jahr: 2020
DOI: https://doi.org/10.1007/978-3-030-50298-0_6