The Exchange Rate Policy Of Singapore And Its Relevance For China

The primary objective of Singapore's monetary policy is to ensure low inflation as a sound basis for sustained economic growth. The monetary policy is centered on the management of the exchange rate, rather than money supply or interest rates. This reflects the fact that, in the small and open economy like Singapore, the exchange rate is the most effective tool in maintaining price stability.The Monetary Authority of Singapore (MAS) has managed the Singapore dollar exchange rate against an undisclosed trade-weighted basket of currencies of Singapore's major trading partners and competitors. The composition of this basket is reviewed and revised periodically to take into account changes in Singapore's trade patterns, but details concerning the index and the boundaries of the target band are not disclosed. The MAS guides the exchange rate to appreciate or depreciate depending mainly on whether expected inflationary pressures are strong or weak, respectively. Singapore's exchange-rate-centered monetary policy framework has helped achieve a track record of low inflation with prolonged economic growth. Taking advantage of Singapore's high saving rate, prudent fiscal policy, and substantial foreign reserves, monetary policy has offset inflation pressures by guiding the exchange rate along an appreciating path.Singapore has gone through economic slowdown, experienced the Asian Financial Crisis, and has also gone through the economic transformation and industrial restructuring, however the strength of the currency has always been maintained. The government has not resorted to devaluing the currency to cope with the awkward situation, instead it cut the wages and took measures to help reduce the operational cost of the businesses. At the meantime, the government increased the investment in education and training in order to create high quality manpower resources to meet the need of the economic transformation and industrial restructuring.Moreover, Singapore has, over the years, been able to maintain low unemployment rate; and despite the economic growth, there has been no compromise to the social harmony and the environmental control. The achievement of Singapore is the experience which a lot of the developing countries would like to copy. China, being the biggest developing country in the world, has been able to achieve great economic success over the past two to three decades, it has also adopted the managed float exchange rate system. As there are vast differences between the two countries in terms of the size, population, scale of the economy, the degree of openness, the degree of economic development and etc., the Singapore model cannot be completely copied into China. However, China can learn from Singapore some of the policies and systems which are unique and have been successfully implemented over the years, such as the efficient financial monitoring system and meritocratic government and administrative systems, the Central Provident Fund Policy, the continuous upgrading program and the lifelong education scheme for the workers and etc.