LexisNexis(TM) Academic - Document
LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 8
LENGTH: 641 words
HEADLINE: Singapore sees 'basket, band and crawl' system as template for E Asia MANAGED FLOATING EXCHANGE RATE:
BYLINE: By JOHN BURTON
DATELINE: SINGAPORE
BODY:
Tiny Singapore may have felt a sense of pride, as China and Malaysia have adopted a version of its managed floating exchange rate system after abandoning their fixed currency pegs against the US dollar.
Singapore has used what is known as the "basket, band and crawl", or BBC, system since the early 1980s. The Singapore dollar is managed against an undisclosed basket of currencies of its main trading partners and competitors.
The exchange rate floats within a set policy band, which lets the currency crawl up or down instead of being subject to sharp fluctuations.
John Williamson, a Washington-based UK economist credited with developing the BBC model in the 1970s, has called Singapore "the world's most successful practitioner of a BBC regime".
The Singapore currency system can "serve as a basic template for other east Asian countries", said Kim-Song Tan at the Singapore Management University in a recent paper on regional exchange rate systems.
The Monetary Authority of Singapore has said the BBC policy has given it flexibility in responding to changes in both local and global conditions to maintain export competitiveness and control inflation.
The composition of the currency basket is revised periodically to take into account changes in trade patterns. The secret policy band is also regularly reviewed to ensure it remains consistent with economic changes, with adjustments every six months if needed.
Singapore, whose currency was first pegged to the US dollar and then floated in the 1970s, chose the BBC regime because of a close link between exchange rates and interest rates in a small and open economy.
The city-state has since guided monetary policy through exchange rates instead of directly adjusting interest rates. Inflation has been relatively low at 2 per cent a year since the early 1980s.
Under the BBC managed float, the Singapore dollar has appreciated by about 20 per cent against the US dollar, although its strong currency policy has eased since the Asian financial crisis in 1997. In contrast, the currency has fallen by 40 per cent against the Japanese yen.
Both China and Malaysia's managed float exchange rate systems appear broadly similar to that of Singapore, though details of their operations are sketchy. But there are several differences. The currency trading bands in China and Malaysia are narrower than in Singapore, which means smaller currency movements. China's trading band is also adjusted daily.
The International Monetary Fund has listed about 40 countries that use some type of managed float system. But Singapore officials say their system is in some ways unique since it is also used to control monetary policy, while policy statements provide a clear indication to the markets of where the currency is headed.
Some economists, such as Mr Williamson, have argued that a BBC regime could provide the basis for the eventual adoption of a common Asian currency. Others suggest the system is not widely applicable in spite of Singapore's success.
Barry Eichengreen, an economist at the University of California and a supporter of floating exchange rates, says Singapore has many strengths, such as a well regulated banking and financial system and large fiscal reserves, that many other countries do not have to support a BBC system.
"A managed float system largely rests on gaining the confidence of the markets. Only if other macroeconomic policies are consistent with a managed float will it be a success," says Song Seng Wun, regional economist with CIMB-GK Goh in Singapore.
Economists think China faces a potential challenge in introducing a managed float, since a small revaluation would continue to attract speculative foreign capital in anticipation of further currency appreciation. As a result, China may have to widen its currency trading band to gain market acceptance. Currencies, Page 19
LOAD-DATE: July 22, 2005
Financial Times (London, England)
July 23, 2005 Saturday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 8
LENGTH: 641 words
HEADLINE: Singapore sees 'basket, band and crawl' system as template for E Asia MANAGED FLOATING EXCHANGE RATE:
BYLINE: By JOHN BURTON
DATELINE: SINGAPORE
BODY:
Tiny Singapore may have felt a sense of pride, as China and Malaysia have adopted a version of its managed floating exchange rate system after abandoning their fixed currency pegs against the US dollar.
Singapore has used what is known as the "basket, band and crawl", or BBC, system since the early 1980s. The Singapore dollar is managed against an undisclosed basket of currencies of its main trading partners and competitors.
The exchange rate floats within a set policy band, which lets the currency crawl up or down instead of being subject to sharp fluctuations.
John Williamson, a Washington-based UK economist credited with developing the BBC model in the 1970s, has called Singapore "the world's most successful practitioner of a BBC regime".
The Singapore currency system can "serve as a basic template for other east Asian countries", said Kim-Song Tan at the Singapore Management University in a recent paper on regional exchange rate systems.
The Monetary Authority of Singapore has said the BBC policy has given it flexibility in responding to changes in both local and global conditions to maintain export competitiveness and control inflation.
The composition of the currency basket is revised periodically to take into account changes in trade patterns. The secret policy band is also regularly reviewed to ensure it remains consistent with economic changes, with adjustments every six months if needed.
Singapore, whose currency was first pegged to the US dollar and then floated in the 1970s, chose the BBC regime because of a close link between exchange rates and interest rates in a small and open economy.
The city-state has since guided monetary policy through exchange rates instead of directly adjusting interest rates. Inflation has been relatively low at 2 per cent a year since the early 1980s.
Under the BBC managed float, the Singapore dollar has appreciated by about 20 per cent against the US dollar, although its strong currency policy has eased since the Asian financial crisis in 1997. In contrast, the currency has fallen by 40 per cent against the Japanese yen.
Both China and Malaysia's managed float exchange rate systems appear broadly similar to that of Singapore, though details of their operations are sketchy. But there are several differences. The currency trading bands in China and Malaysia are narrower than in Singapore, which means smaller currency movements. China's trading band is also adjusted daily.
The International Monetary Fund has listed about 40 countries that use some type of managed float system. But Singapore officials say their system is in some ways unique since it is also used to control monetary policy, while policy statements provide a clear indication to the markets of where the currency is headed.
Some economists, such as Mr Williamson, have argued that a BBC regime could provide the basis for the eventual adoption of a common Asian currency. Others suggest the system is not widely applicable in spite of Singapore's success.
Barry Eichengreen, an economist at the University of California and a supporter of floating exchange rates, says Singapore has many strengths, such as a well regulated banking and financial system and large fiscal reserves, that many other countries do not have to support a BBC system.
"A managed float system largely rests on gaining the confidence of the markets. Only if other macroeconomic policies are consistent with a managed float will it be a success," says Song Seng Wun, regional economist with CIMB-GK Goh in Singapore.
Economists think China faces a potential challenge in introducing a managed float, since a small revaluation would continue to attract speculative foreign capital in anticipation of further currency appreciation. As a result, China may have to widen its currency trading band to gain market acceptance. Currencies, Page 19
LOAD-DATE: July 22, 2005
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