Singapore Dollar (SGD) and 

Monetary Authority of Singapore (MAS)

Introduction

Singapore Dollar (SGD) is managed by the Monetary Authority of Singapore (MAS). One of the primary objectives of MAS is to promote non-inflationary economic development with stable exchange rate. MAS targeted Money supply and interest rate to combat inflation. However, given the characteristics of a small and open economy. Singapore does not have any independence in these two areas. Thus, since 1981, MAS switched to exchange rate targeting (MAS Annual Report 1981/1982).

SGD's official regime is managed float. SGD is weighted against an undisclosed basket of currencies and is allowed to float within an undisclosed target band. MAS does not maintain a parity against USD, unlike Hong Kong Dollar and Malaysia Ringgit. However, given US, Malaysia and Hong Kong are such an important trading partners of Singapore (Malaysia and Hong Kong have their currencies peg to USD), we can safely assume that the weights assign for USD is high. 

MAS maintained a strong dollar policy. This is in line with the observation that Singapore domestic interest rate is persistently higher than US interest rate. However, there are events when MAS allowed SGD to depreciate. In the 1985-86 recession, aftermath of Asian financial crisis in 1998 and the recession in 2002, MAS allowed SGD to depreciate with the stated objectives taken in consideration. (Note that in both 1985-86 and 1997-98, speculators attacked Singapore Dollar.)

Objectives

1. Maintain Price Stability

2. Enhance Export Competitiveness

Non-Internationalization Policy

MAS has a non-Internationalization policy in place. By internationalizing SGD, MAS potentially risk losing the exchange rate as an instrument to manage the economy. This loss is especially grave given Singapore's lack of option of other instruments like interest rate targeting and money supply targeting.  Internationalization of SGD will increase the vulnerability to speculative attacks.

Data 

Figure1: SGD/USD from1974 to 2002

(source: www.singstat.gov.sg)

Figure2: USD/SGD from 1974 to 2002

(source: www.singstat.gov.sg )

References

Chia, Alison and Bauer John G, Analysis of Exchange Rate Movements: A Case Study of Singapore, Nanyang Business School, 2001/2

Kim Yoonbai and Chow Hwee Kwan , Exchange Rate Policy in Singapore: Prospects for a common currency peg in East Asia

Chua Sing Ling and Wilson, Peter, Internationalization of Singapore Dollar: A Reappraisal, NUS, 2001/2

Web Sources

Monetary Authority of Singapore: www.mas.gov.sg

Department of Statistics Singapore: www.singstat.gov.sg