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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

Abstract

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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Suggested Citation

  • Basant K. Kapur, 2007. "Capital Flows and Exchange Rate Volatility: Singapore's Experience," NBER Chapters,in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 575-608 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:0161
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    References listed on IDEAS

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    1. Sujit Chakravorti & Subir Lall, 2000. "The double play: simultaneous speculative attacks on currency and equity markets," Working Paper Series WP-00-17, Federal Reserve Bank of Chicago.
    2. Arturo Bris & William N. Goetzmann & Ning Zhu, 2007. "Efficiency and the Bear: Short Sales and Markets Around the World," Journal of Finance, American Finance Association, vol. 62(3), pages 1029-1079, June.
    3. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 2002. "The Role of Large Players in Currency Crises," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 197-268 National Bureau of Economic Research, Inc.
    4. Kenneth S. Chan & Kee Jin Ngiam, 1996. "Currency Speculation and the Optimum Control of Bank Lending in Singapore Dollar; A Case for Partial Liberalization," IMF Working Papers 96/95, International Monetary Fund.
    5. Kenneth S. Chan & Kee Jin Ngiam, 1996. "Currency Speculation and the Optimum Control of Bank Lending in Singapore Dollar; A Case for Partial Liberalization," IMF Working Papers 96/95, International Monetary Fund.
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    Cited by:

    1. Hwee Kwan Chow, 2010. "Managing Capital Flows: The Case of Singapore," Chapters,in: Managing Capital Flows, chapter 14 Edward Elgar Publishing.
    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, pages 175-187.
    3. 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.

    More about this item

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance

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