b1110
Challenges for the Singapore Economy
As far as money aggregates are concerned (Figure 6), the broad
measure of the money supply (M2), which is determined by both
changes in the monetary base (reserve money) and the intermedia-
tion of reserve money by the banks through the money multiplier
process, fell sharply following the contraction in output in 2008 but
stabilized in 2009 as the economy recovered.
85
During the crisis the
demand by banks for reserve balances rose as a result of growing lia-
bilities with a spike in September 2008 following the collapse of
Lehman Brothers and uncertainty over counterparty credit and illiq-
uidity in international funding markets. At the same time the banks
kept higher cash balances as a precautionary measure. Public sector
transactions, however, which also affect money market liquidity, were,
on balance contractionary, especially at the start of the fiscal year.
Monetary Policy in Singapore and the Global Financial Crisis
153
85
Broad money in Singapore comprises demand deposits and currency in circulation,
together with ‘quasi-money’ such as fixed savings deposits held in banks plus nego-
tiable certificates of deposit issued by Singapore banks in Singapore dollars. Reserve
money is notes and coins held by the public plus banks’ vault cash and current
accounts with the MAS.
2007
2008
2009
2010
10
15
20
25
Change in M2
2007
2008
2009
2010
10
15
20
Change in Reserve Money
2007
2008
2009
2010
10.0
10.5
11.0
The M2 Money Multiplier
Figure 6
:
Monetary aggregates 2007–2009.
Source
: Monetary Authority of Singapore financial database, mas.gov.sg.
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