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Capital Flows and Exchange Rate Volatility: Singapore’s Experience

In: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences


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  • Basant K. Kapur


Singapore%u2019s experience with international capital flows over the past two decades or so has been a rather %u2013 although not completely %u2013 benign one, owing to strong fundamentals and generally well-conceived macro-economic policies. We begin by briefly discussing the experience in 1998 of Hong Kong, another city-state with a well-developed banking system and equities market, and operating on a Currency Board (CB) system (although with some differences from Singapore%u2019s CB system). The discussion serves to identify some %u2018areas of vulnerability%u2019 in the Hong Kong set-up at that time. We next discuss Singapore%u2019s policy background and early experience, and in the light of Hong Kong%u2019s experience are better able to appreciate how Singapore%u2019s policy framework served to circumvent or minimize important vulnerabilities. Particular attention is paid to Singapore%u2019s exchange-rate policy and its policy of non-internationalization of the Singapore dollar. Equity- and currency- market interactions are also considered. We next show how Singapore emerged relatively unscathed from the 1997 Asian Crisis. Lastly, we discuss Singapore%u2019s debt markets, and show how under the imperative of promoting the development of its bond markets the non-internationalization policy has been progressively relaxed, while retaining key safeguards.

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This chapter was published in:

  • Sebastian Edwards, 2007. "Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences," NBER Books, National Bureau of Economic Research, Inc, number edwa06-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0161.

    Handle: RePEc:nbr:nberch:0161

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    1. Arturo Bris & William Goetzmann & Ning Zhu, 2004. "Efficiency and the Bear: Short Sales and Markets around the World," Yale School of Management Working Papers, Yale School of Management ysm327, Yale School of Management, revised 01 Feb 2005.
    2. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 2001. "The Role of Large Players in Currency Crises," NBER Working Papers 8303, National Bureau of Economic Research, Inc.
    3. Sujit Chakravorti & Subir Lall, 2000. "The double play: simultaneous speculative attacks on currency and equity markets," Working Paper Series, Federal Reserve Bank of Chicago WP-00-17, Federal Reserve Bank of Chicago.
    4. Kenneth S. Chan & Kee Jin Ngiam, 1996. "Currency Speculation and the Optimum Control of Bank Lending in Singapore Dollar," IMF Working Papers 96/95, International Monetary Fund.
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    Cited by:
    1. Eliza, Nor & M., Azali & Law, Siong-Hook & Lee, Chin, 2008. "Demand For International Reserves in ASEAN-5 Economies," MPRA Paper 11735, University Library of Munich, Germany.
    2. Marjit, Sugata & Das, Pranab Kumar & Bardhan, Samaresh, 2007. "A portfolio based theory of excessive foreign borrowing and capital control in a small open economy," Research in International Business and Finance, Elsevier, Elsevier, vol. 21(2), pages 175-187, June.


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