Parliamentary Replies
Published Date: 19 May 2004

Reply to PQ on SGD Exchange Rate and Multiple Roles of MAS Chairman

Question No. 566 & 575
Notice Paper No. 99 of 2004
For Oral Answer

Date: For Parliament Sitting on 19 May 2004

Name and Constituency of Member of Parliament

Q566, Dr Lily Neo, MP for Jalan Besar GRC
Q575, Mr Steve Chia Kiah Hong, Non-Constituency Member

Question 566

To ask the Deputy Prime Minister and Minister for Finance in view of strengthening of the Singapore dollar against the US dollar over the past few years (by some 25% since 1997), (a) how will it impact on Singapore's competitiveness; and (b) what consequences will a stronger Singapore dollar have on Singaporeans in general.


1.  I would first like to clarify that Dr Lily Neo's calculation that the Singapore dollar has strengthened by 25% against the US dollar since 1997 is incorrect .   In fact, compared to its value in 1997 just before the Asian crisis, the Singapore dollar is still 17% weaker against the US dollar.

2.  MAS manages the Singapore dollar against a trade-weighted basket of currencies of our major trading partners and competitors.   In view of the weakness of the economy and absence of inflationary pressure, MAS has managed the exchange rate flexibly, and the trade-weighted exchange rate has eased since 2001.  It was only recently in April that MAS shifted to a modest and gradual appreciation of the trade-weighted exchange rate as the economy strengthened and early signs of inflationary pressures emerged.

3.  The main objective of exchange rate policy in Singapore is to maintain low inflation and a stable domestic currency, as a sound basis for sustained economic growth. The exchange rate should not be used as an instrument to gain export competitiveness, or substitute for essential adjustments the economy needs to make as our external environment changes. 

4.  But we recognize the need to improve the competitiveness of the Singapore economy. We have done this by deregulating the economy and directly reducing CPF contribution rates, rentals, utility charges and tax rates.   Over the past two years or so, unit business costs have come down.  Ultimately, firms stay competitive by increasing productivity, creating new products, and actively seeking out new markets.  The government has also tried to support and facilitate this process through various targeted measures.

5.  In addition, the high import content of Singapore's economy means that a depreciation of the Singapore dollar would entail higher costs for producers and consumers.  A weaker Singapore dollar will lead to higher import prices and result in rising inflation in the economy.  This would erode the purchasing power of Singaporeans.   

6.  A strong and stable exchange rate supported by our sound economic fundamentals over the past two decades has generated confidence in Singapore as a regional financial centre and trading hub, and a rising standard of living for all Singaporeans.  MAS will continue to manage the exchange rate in a flexible manner to ensure that exchange rate policy remains supportive of economic activity, while maintaining low inflation. 

Question 575

To ask the Deputy Prime Minister and Minister for Finance if he will adopt the recommendation of the International Monetary Fund and World Bank to change the management structure of the Monetary Authority of Singapore, in specific, that of its chairman from holding multiple roles that can give rise to potential conflicts of interest.


1.  Ideally the Chairman of MAS should not hold multiple roles. But there are practical constraints in Singapore that make it difficult to avoid completely senior elected officials holding multiple responsibilities.

2.  There is no immediate need to change the status quo. First, the assessors from the IMF and World Bank have acknowledged that there are legal and institutional safeguards against any potential conflicts of interest.  For example, while the MAS Board sets the broad policy directions, it is the Managing Director and the management team who execute the day-to-day operations according to these policies. In addition, MAS' long tradition of sound licensing and supervisory decisions and its increasing transparency will continue to ensure that the MAS carries out its responsibilities in an independent manner.

3.  Second, unlike in some countries where the central banks have been pressured to finance the fiscal deficit and so failed to maintain price stability, the Singapore government maintains a prudent fiscal policy. There has never been any need for MAS to finance any government deficit, nor is such a need likely to arise in future. MAS has full freedom to carry out its primary role of maintaining price stability.  It has established credibility with the market, through its track record of running a monetary policy that has yielded low inflation and sustained economic growth over a long period.

4.  Nevertheless, we will review the MAS Act to further strengthen accountability and transparency.