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Choice of Exchange Rate Regime: Currency Board (Hong Kong) or Monitoring Band (Singapore)?
Author(s) -
Rajan Ramkishen S.,
Siregar Reza
Publication year - 2002
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.00179
Subject(s) - currency board , currency , exchange rate , liberian dollar , order (exchange) , position (finance) , us dollar , economics , exchange rate regime , monetary economics , international economics , business , finance
Following the East Asian crisis, a number of observers have advocated that small and open economies in Asia adopt an irrevocably fixed regime. Such a hard peg, it is argued, signals greater commitment to rule out arbitrary exchange rate adjustments as well as the authorities’ willingness to subordinate domestic policy objectives such as output and employment growth to the maintenance of the pegged exchange rate. But is this a reasonable position to adopt? In order to answer this question, we consider and contrast the experiences of Hong Kong and Singapore. While both of these economies share a number of broad similarities, the former operates a US dollar–linked currency board arrangement and the latter maintains an adjustable peg in the form of a monitoring band arrangement with the central parity based on an undisclosed trade–weighted currency basket.