Consumers would benefit from a wider offering of products and services at competitive prices. Taking a more strategic and proactive approach to development Third, we adopted a more strategic and pro-active approach to developing the financial sector. We actively went out to attract new business here. For institutions already in Singapore, we tried to anchor them more firmly, and encouraged them to expand and introduce new activities here. BIS Review 62/2002  1  Enhancing monetary policy effectiveness Finally, we had to enhance the effectiveness of our monetary policy. Free capital flows and complex derivative products had made it impossible to completely insulate the Singapore dollar against attack. Our approach had been to operate an inscrutable monetary policy and impose comprehensive restrictions on non-resident borrowing of Singapore dollars. This was not only becoming untenable, but was also hampering the growth of our financial markets. We needed a more explicit and transparent monetary policy stance, and more precisely targeted safeguards against the risks of internationalising the Singapore dollar. III. The changes in the financial and economic landscape  We launched these major changes just as the Asian Crisis was breaking. But we did not foresee how difficult the next five years would be. Southeast Asian countries became mired in political difficulties triggered by the crisis. Malaysia dismissed its Minister of Finance and imposed exchange controls. Indonesia saw the fall of the Suharto government, only to be succeeded by a totally different dispensation.

Likewise, instead of preventing institutions from taking risks, we must encourage them to better identify, monitor, and control the risks they take. Constant vigilance will help institutions to monitor their own status, and pre-empt any deterioration before damage is done, either to the institution or worse to the financial system as a whole. At the same time, MAS must continue to balance its natural inclination to regulate or supervise away what is new and strange and therefore risky, with the need to encourage the financial sector to be more dynamic and innovative. Nowadays when presented with new and ingenious schemes dreamt up by investment bankers, my first reaction is often to ask whether it may be too clever to be sound. Such scepticism on the part of financial supervisors is natural and healthy, but it should not deter innovation or become our dominant mindset. More broadly, because of the emergence of global financial conglomerates and the trend towards increasing risk transfers across financial industries, regulators need a holistic understanding of what and where potential vulnerabilities are, and how exogenous shocks might impact and permeate through the financial system. MAS must therefore enhance its capabilities in integrated supervision and financial surveillance. This is more critical as Singapore becomes more closely integrated into the global economy. 6  BIS Review 62/2002  We are also conducting our monetary policy in an environment of increased market uncertainty. Our exchange rate policy band should certainly be supported by sound fiscal and macroeconomic fundamentals.