MONETARY POLICY AND FINANCIAL SECTOR DEVELOPMENT

Abstract

This paper reviews Singapore's monetary policy and financial development since independence, including the immediate challenges in the 1960s, the turbulent years of the 1970s with the collapse of the Bretton Woods fixed exchange rate system and the global oil shocks of 1973 and 1979, the introduction of a unique exchange rate-centered monetary policy in 1981, the Asian financial crisis of 1997–1998 and the global financial crisis of 2007–2009. Despite being a late starter (1971) and given a number of obstacles, not least the high degree of openness of the Singapore economy to trade and capital flows, the Monetary Authority of Singapore has built up a high degree of credibility within a relatively short space of time and delivered low and stable inflation. Although financial development has been "government made" rather than market-driven, proactive and sensible policies have built on Singapore's long history as a regional trading hub to turn Singapore into a premier financial center in terms of foreign exchange trading, offshore money market intermediation and asset management. Nonetheless, some challenges remain: How monetary policy can deal with asset price bubbles and deflationary pressures and steer a careful course to maintain price stability without jeopardizing Singapore's transitory restructuring process to achieve sustainable economic growth.