less vulnerable to such mishaps when they occur. while we can strengthen the global financial system, we can never eliminate bubbles and crashes completely. manias, panics and crashes are inherent to capitalism dating back to the tulip mania and south sea bubble of the 17th century and probably before. in theory, investors make independent decisions which collectively result in a stable and efficient market outcome. in reality, uncertainty due to incomplete information and a basic human instinct to herd can prove destabilising and disastrous. for small open economies, the best defence against an uncertain and sometimes dangerous environment is to pursue prudent macroeconomic policies, strengthen their financial systems and improve their governance framework. sound domestic policies and institutions cannot eliminate panic and contagion. but they can cushion the adverse effects and make the economies more resilient to the financial shocks when they occur. thank you.

our economy for example to fund a short position in the s $. we believe that the s $ exchange rate should be appropriate to prevailing economic conditions and the underlying state of the singapore economy. indeed in the long term, keeping the currency in line with fundamentals is the best way to avoid offering speculators too tempting a target. exchange rate regimes massive speculative attacks on exchange rates are a common element in financial crises. misaligned fixed exchange rates have figured prominently in financial crises throughout the 1990s, even the 1980s and 1970s. in the post - crisis era, the conventional wisdom is that emerging markets should choose either a free - floating or fixed exchange rate system. but neither is a panacea. fixed exchange rates are hard to sustain in a world of global capital mobility. furthermore, they tend to be viable only when supported by large foreign reserves and strong institutional arrangements. even then, the exchange rate can still become misaligned and vulnerable, as has happened in argentina. in hong kong, strong foreign reserves and well - developed financial authorities and institutions made its currency board workable and credible. but even the hong kong dollar came under fierce attack in this crisis. in other countries a fixed exchange rate may be completely infeasible. thus professor steve hanke ’ s proposal to set up a currency board system to stabilise the rupiah was viewed with deep scepticism by policymakers both in indonesia as well as the imf and the world bank. neither does a free - floating exchange rate always work. even developed countries do not remain impassive when capital flows overwhelm trade flows and threaten the competitiveness of the country ’ s exports. a prime example is japan. and despite a free - float, the exchange rate may spiral downwards if there is a loss of confidence. this happened in indonesia and brazil after they abandoned their exchange rate pegs. singapore operates a managed float. this policy has prevented the currency from getting too far out of line and rendering our exports uncompetitive as a fixed rate might have done. a managed float has not totally eliminated speculative pressures on the s $, but for our circumstances it is the most appropriate approach. the best exchange rate regime depends on the specific circumstances of each economy. while it is important to get this right, the exchange rate does not exist in a vacuum. ultimately, it is the strength of the country ’ s economy, the soundness of its fiscal and monetary policies and the confidence of both foreign