A free floating exchange rate would mean relinquishing our most effective inflation-fighting instrument. On the other hand a fixed exchange rate, pegged say to the US dollar, would lock our economic fortunes to US monetary policy, with no assurance that it would be appropriate to the state of our economy. The intermediate option of a managed float remains the best approach for us. In our experience, a managed float helps to buffer the adverse effects on the economy of short-term financial volatility, and to avoid sustained currency misalignments that can be damaging to our export sector. Managing the float requires us to lean against the wind at times, but provided our exchange rate policy is aligned with economic fundamentals, and our ability and determination to counter destabilising speculation is not in doubt, we need to intervene less than might be expected. Until recently, MAS did not reveal its view of the exchange rate, what it had done, or what it intended to do. But going forward, MAS recognises the need to be more communicative and less opaque about its exchange rate policy. Hence we have been making half-yearly monetary policy statements announcing our prevailing policy stance. We have also published the movements of the trade-weighted Singapore dollar, hitherto a closely guarded secret. We envisage that if market participants and the public understand our policy stance better, there will be less uncertainty, and policy implementation will be more effective. We have also reviewed and refined our policy on the internationalisation of the Singapore dollar.

SIMEX was the first financial futures exchange in Asia. Well before exchange linkages became the norm, SIMEX co-pioneered the world’s first mutual offset trading link with the Chicago Mercantile Exchange, facilitating round-the-clock trading. Renamed SGX-DT, the derivatives exchange today trades a broad range of interest rate, fixed income, equity and energy derivatives. A later initiative was the programme launched in 1994 to develop the fund management industry in Singapore. Our fund management industry was small compared with other financial centres. The Central Provident Fund (CPF) system was absorbing the bulk of the population’s long-term savings, and starving the private fund management industry of local funds. The Government liberalised the rules to allow CPF savings to be invested in approved unit trusts and fund management accounts. MAS and GIC went on to give modest mandates to external fund managers, although these could only be the seed money to grow the industry. At the end of 2000, the total assets managed by Singaporebased financial institutions was $ billion, four times the $ billion in 1994 when we embarked on the programme. New directions The approaches that we took in monetary policy, financial supervision and development have served Singapore well. We maintained low inflation and a macroeconomic environment favourable to growth. Our capital markets have grown rapidly over the past few years, while our forex market is one of the largest in the world. With over 200 banks and merchant banks, 150 insurance companies and 160 investment advisors in Singapore, we have become a major financial centre.