Question
To ask the Deputy Prime Minister whether (i) it is in the long-term interest of Singapore to allow the Singapore Dollar to serve as a common trading currency in the ASEAN countries; (ii) he would consult experts as well as the Chambers of Commerce before a decision is taken by the Government; and (iii) the Government is still of the view that the Singapore Dollar should not be internationalised.
Answer:
1. We have not received any specific proposal to use the Singapore Dollar as a common trading currency among the ASEAN countries. If and when we learn the details of such a proposal, we will evaluate its benefits and costs.
2. However, the first question is whether the Singapore Dollar has the pre-requisites for being used in this way. Dr Augustine Tan published a lucid article in the Straits Times on 12 February, in which he set out quite clearly what is required for a currency to play this role. First, the size of the economy matters. Second, there has to be a substantial amount of the currency in international circulation. On both counts, the Singapore Dollar does not qualify. It is not without reason that the US Dollar is the most widely used currency in international trade.
3. The primary reason the Singapore dollar has not become interna-tionalized is that there is no market demand for it. Our policy against the extension of credit in Singapore dollars to non-residents could not by itself have prevented the internationalization of the Singapore dollar in the face of market demand.
4. The basic rationale for not encouraging the internationalisation of the Singapore Dollar remains valid. If the Singapore Dollar is widely held and used internationally, our influence over the exchange rate would diminish, making the currency more vulnerable in a speculative attack, even though our sound fundamentals make it unlikely that such attacks will eventually succeed. As a small and open economy, we cannot afford this.
5. However, within this framework, we are reviewing some of the specific restrictions on the use of the Singapore Dollar, with a view to making adjustments that can help to further develop the financial sector, particularly in the area of capital markets. In each case, we need to weigh the incremental risks to monetary and exchange rate management against the potential benefits of further liberalisation. MAS is currently studying this issue as part of its review of policies affecting the development of Singapore as a financial centre.