JANUARY 6, 2004
MIHIR A. DESAI
MARK F. VEBLEN
Exchange Rate Policy at the Monetary Authority of
Dr. Khor Hoe Ee, Assistant Managing Director, Monetary Authority of Singapore (MAS), reviewed the year-end economic data for 2001. He had just met with a number of his colleagues and now paged through the statistics they had discussed. Dr. Khor wondered whether the monetary system that has served Singapore so well since the late 1970s—and had filled the void left by the collapse of the Bretton Woods currency system—was still the best model for Singapore to follow. Singapore’s managed float, sometimes referred to by journalists as a “dirty float,” stood in contrast to the systems used by some of its neighbors: Hong Kong had remained strongly committed to its peg against the U.S. dollar, and Australia had just recently shifted to a completely floating regime. A key item on the agenda for the Monetary Policy Committee meeting at the end of January was to review and set monetary policy in response to the changing economic environment. As head of the MAS’s Economics Department, Dr. Khor knew that he was responsible for recommending a policy response that would be consistent with Singapore’s strategy for sustainable economic growth with price stability as well as supporting Singapore’s role as a major global financial center. A great deal had happened in the domain of monetary policy in the last five years, much of which posed challenges for Singapore. Since the massive currency depreciations of the Asian Financial Crisis, major reforms were either implemented or being considered across Asia. Singapore was surrounded by neighbouring countries whose domestic economies were faltering. One commentator even quipped that Singapore’s best hope of returning to the heady growth rates of the past was “If Singapore could just sail north and land near Hong Kong or Taiwan.” Furthermore, Southeast Asia had watched its share of foreign direct investment decline as FDI increasingly shifted to China. To make matters worse, the frequency of economic shocks had increased dramatically after 1997, creating a much less stable environment than the one that accompanied Singapore’s rapid growth years earlier.
Dr. Khor was confident that Singapore’s economy—with its high savings rate, vast stock of foreign reserves, strong trading relationships, and sterling reputation in international markets—was fundamentally strong. At the same time, he was conscious of the rapidly changing economic environment, and would like Singapore to be seen as proactive in responding. ________________________________________________________________________________________________________________ Professor Mihir A. Desai and Research Associate Mark F. Veblen prepared this case. Authors would like to thank Dr. Khor Hoe Ee, Asistant Managing Director (Economic Research and Financial Stability), Mr. Wong Fot Chyi, Executive Director (Macroeconomic Surveillance), Mr. Edward Robinson, Principal Economist (Economic Policy Department) and Dr. Chow Hwee Kwan (Economic Policy Department) for the series of discussion meetings on which this case study was based and their comments on an earlier draft. However, the case study is meant to be pedagogic and any reference to specific individual, department or institution is meant to be purely illustrative. Any inaccuraccies or misrepresentations in the case study should not be attributed to the MAS. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a...
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