ECONOMICS: Singapore dollar
Far Eastern Economic Review
Feb 19, 1998
At Arm's Length
* By Salil Tripathi in Jakarta
Singapore likes the compliment economists pay when they call it an
island of rectitude in an ocean of profligacy. It's a compliment that
was doubled when Malaysian Prime Minister Mahathir Mohamad proposed
denominating intra-Asean trade in Singapore's sturdy dollar.
The problem is, letting its currency become the regional standard
could subject the island state to some of the same economic storms
buffeting its neighbours. And that's why the proposal is unlikely to
find much support in Singapore itself.
For the Monetary Authority of Singapore, a strong dollar which it can
control is an article of faith, its No. 1 weapon to keep out imported
inflation and curb exchange-rate volatility. Indeed, says P.K. Basu,
senior economist at UBS Securities in Singapore, if Asean trade was
denominated in Singapore dollars, the city-state would have suffered
more during the current turmoil.
That's not to say Singapore wouldn't benefit from a greater
role. As Singapore develops as a financial centre, the government may
decide to authorize greater lending of Singapore dollars abroad, to
allow Singapore companies in the region to lower their exchange risk.
Cooperation on monetary policy could also he stabilize a region
with which its economy is intertwined. But any change in that direction
would be gradual. "The Singapore dollar may form a small but useful part
of a basket of reserve currencies," says Mukul Asher, professor of
economics at the National University of Singapore. "But to waste energy
on thinking seriously about it being the or even a major reserve
currency is to be in a denial mode about the real causes of the crisis."