Managing Capital Flows: The Case of Singapore

Abstract

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How are Exchange Rates Managed? Evidence of an Anchor‐Based Heuristic

“…The proposed heuristic is consistent with the way exchange rates are managed by some central banks. For instance, the Monetary Authority of Singapore, which maintains a managed float against an undisclosed trade‐weighted basket of currencies, regularly intervenes in the Singapore dollar–US dollar market and leaves the adjustments of other basket constituents to market forces (Chow, ).…”

The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies

“…The latter renders exchange rate stability essential to avoid excessive revaluations of wealth and to maintain confidence in the Singapore Dollar as stable store of wealth. In addition, Chow () shows that given Singapore's small and open economy, the exchange rate is the more important transmission mechanism to inflation; the economy is less sensitive to interest rates.…”

Singapore

“…Thus, abrupt large changes in the exchange rate are prevented, while the impact of intervention on domestic liquidity is managed through money market operations (foreign exchange reverse swaps, lending to or borrowing from banks, purchase or sales of government securities and repurchase agreements). 10 With the use of such operations, the MAS is able to inject or drain liquidity from the domestic financial system quickly, thereby fostering orderly money market conditions (Chow, 2008).…”

“…To avoid circumvention through financial derivatives, credit facilities were defined to cover a broad range of financial instruments, including loans, foreign exchange swaps, interest rate swaps, facilities incorporating options, and forward rate agreements in local currency(Kapur, 2007).17 These requirements are not considered as impediments to financial market development, as the Singapore dollar is not a currency commonly used for transactions abroad. Instead they are considered as a basic safeguard against funding of speculative activities(Kapur, 2007;Chow, 2008).©International Monetary Fund. Not for Redistribution…”