Staff Papers
Published Date: 01 December 2004

Managed Floating and Intermediate Exchange Rate Systems: The Singapore Experience.

MAS Staff Paper No. 37, December 2004 - By Khor Hoe Ee, Edward Robinson and Jason Lee


Monetary policy in Singapore has been centred upon management of the exchange rate since 1981, with the primary objective of promoting price stability as a sound basis for sustainable economic growth.  This paper examines the key characteristics of Singapore's exchange rate-centred monetary policy; in particular, its managed float regime which incorporates key features of the basket, band and crawl system popularised by Williamson (1998, 1999).  We assess how the flexibility accorded by this framework has been advantageous in facilitating adjustment vis-a-vis previous episodes of heightened volatility, including those occasioned by external shocks such as the Asian financial crisis and the terrorist attacks in 2001.  We also review previous econometric evidence that Singapore's managed float system may have helped to mitigate the spillover effects of such increased volatility into the real economy.  The track record of Singapore's managed float regime over the past two decades suggests that, contrary to the dominant view during the Asian financial crisis, intermediate regimes can indeed function as a viable alternative to the so-called 'corner solutions', albeit only when coupled with a supporting framework of consistent macroeconomic and microeconomic policies as well as strong institutions.