b1110
Challenges for the Singapore Economy
Accounting Standards Board, which are due to be implemented by the
end of 2012. Singapore has formed the Corporate Governance
Council to update its standards on compensation and corporate gover-
nance for companies listed in the Republic. More regulatory changes
are expected.
From a monetary policy perspective, the failure of the traditional
reliance on interest rates and money aggregates operating through the
financial intermediation of banks was of less relevance to Singapore
given its exchange-rate centred monetary policy, but it does emphasise
again the limitations of this policy in dealing with a severe downturn
in the absence of a strong fiscal stimulus and, if necessary, other
unorthodox cost-cutting measures. It also raises an interesting ques-
tion: if necessary would MAS resort to extensive quantitative easing
along the lines of the US and UK if the domestic financial system were
on the brink of collapse?
Surprisingly, there are no obvious institutional or psychological
constraints to this happening. The MAS is not an independent central
bank and there is no historical evidence to suggest that it would be
unwilling to cooperate with the Finance Ministry to provide targeted
direct lending to the private sector if necessary. Neither is there any
reason to believe that it would rule out the ‘nuclear option’ of ‘print-
ing money’. Singapore does not run a currency board system in the
same manner as Hong Kong but it does have a Currency Board
located within the MAS which, under the Currency Act, must main-
tain sufficient foreign assets in its Currency Fund to provide 100%
backing for any currency notes it issues to the banks.
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However, since the Currency Board holds foreign currency
reserves well in excess of the amount of currency in circulation, this
should not be a binding constraint. Anyway the law could always be
changed. Of course, quantitative easing would not be its first choice,
given the inflationary risks, but it need not be ruled out. The more
subtle problem would be whether the subsequent increase in liquidity
Monetary Policy in Singapore and the Global Financial Crisis
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For the differences between the currency boards in Singapore and Hong Kong, see
Peebles and Wilson (2002).
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