Building confidence and credibility Monetary policy MAS was born in turbulent times. It was 1971. The US dollar was under intense pressure, due to mounting inflation and balance of payments problems brought on by the Vietnam War and Great Society programmes. In August 1971, just months after MAS was formed, the US suspended convertibility of the US dollar into gold, plunging international currency markets into turmoil. In June 1973, the Bretton Woods system of fixed exchange rates finally collapsed, and the Singapore dollar was floated. Having witnessed these tumultuous events and the instability they caused, the Singapore Government enshrined a strong and credible currency as one of the key pillars of macroeconomic policy, and charged MAS with the responsibility of ensuring it. Tight fiscal discipline, a healthy balance of payments, and a vibrant Singapore economy underpinned the steady strengthening of the Singapore dollar. A second defining moment in the evolution of MAS’ monetary policy came in 1981 when global inflation accelerated in the wake of the second oil shock. Dr Goh Keng Swee, who took over as Chairman of MAS, clarified low inflation as the key policy objective, and shifted the focus of monetary policy onto the exchange rate as the principal policy instrument. The high import content of our domestic expenditures meant that domestic inflation in Singapore was largely determined by changes in foreign prices and the exchange rate. Traditional monetary policy instruments such as money supply and interest rates were ineffective in controlling output and prices given the openness of our economy.

In banking, where risk-based capital standards already exist, MAS is working with the local banks to implement the proposed New Basel Capital Accord. In insurance, securities and futures trading, we are revising the existing disparate capital frameworks, to replace them with a consistent risk-based approach based on common principles and objectives. 2  “Issues in Global Financial Supervision”, Remarks at the 36th SEACEN Governors' Conference in Singapore, 1 June 01. BIS Review 67/2001  5  Effective corporate governance Over time, we should rely more on corporate governance and market discipline to complement prudential regulation and supervision. Good corporate governance is critical to fostering a strong risk management culture and effective internal controls. Going forward, MAS will further raise corporate governance standards, particularly with regards to enhancing the independence of boards and institutionalising professional management. But this must be phased in judiciously. We cannot impose these standards in a vacuum without regard to the institutional and cultural realities in our corporate sector. Effective market discipline Market discipline imposes external incentives on financial institutions to conduct their business in a sound and efficient manner. For market discipline to work, there must be timely and accurate disclosure of relevant information. Investors must be sophisticated enough to make good use of disclosed information, and make considered investment decisions appropriate to their needs and risk appetites. MAS will progressively raise disclosure standards in the financial sector to meet international best practice. Development of the financial industry MAS continues to be charged with the development of Singapore’s financial sector.