Singapore and Switzerland – Never The Twain Shall Meet ? (Monetary Policy)

Source : Lonely Planet

Singapore has longed to be Switzerland.

Back when LKY was the prime minister, Singapore was led by policies of neutrality and non alignment, following the Swiss model.

When Goh Chok Tong took over, the second generation leaders envisioned Singapore to be “A City of Excellence and a Society of Distinction”, seeking a standard of living equal to that of the Swiss in 1984, by 1999.

Singapore can safely say she has overtaken Switzerland, Norway and the likes, with the exception of just Luxembourg and Qatar in the world, with a GDP (PPP) per capita of US$56,700.

That is a mighty achievement.

Similarities (taken off

  • Stable, prosperous and high tech economy rated AAA/Aaa
  • Ranked as most competitive in the world (Singapore is 2nd)
  • 4.5 million people work in Switzerland, total population 7.8 milion
  • Unemployment 3.1%
  • Population growth from net immigration with foreign citizen population of 21.8%
  • High GDP per capita

Does feel like it is talking about Singapore ?

Yet I will not rock the hornet’s nest on the issue of quality of life.  Because our last inflation report shows Singapore at 5.2% yoy  in Mar while Switzerland is -1%.

The SGD has appreciated 4.5% in 2012 against the USD while the CHF has only appreciated 2.8%, after a dramatic peg to the EUR last Sep.

Singapore has  a runaway GDP of 1.6% yoy  for 1Q12 (4.8% in 2011) and an overheating economy. Switzerland only grew 1.9% for the entire 2011.

Central Banks

MAS is the central bank of Singapore. Our mission is to promote sustained non-inflationary economic growth, and a sound and progressive financial centre.

  • To act as the central bank of Singapore, including the conduct of monetary policy, the issuance of currency, the oversight of payment systems and serving as banker to and financial agent of the Government
  • To conduct integrated supervision of financial services and financial stability surveillance
  • To manage the official foreign reserves of Singapore
  • To develop Singapore as an international financial centre

The Swiss National Bank (SNB) is the central bank of Switzerland. It is responsible for Swiss monetary policy and for issuing Swiss franc banknotes.

And it is a listed company with 55% of its shares owned by public institutions and the rest traded on the stock market.

Monetary policy

The Swiss National Bank conducts the country’s monetary policy as an independent central bank. It is obliged by Constitution and statute to act in accordance with the interests of the country as a whole. Its primary goal is to ensure price stability, while taking due account of economic developments. In so doing, it creates an appropriate environment for economic growth.primary goal is to ensure price stability, while taking due account of economic developments. In so doing, it creates an appropriate environment for economic growth.

Singapore DOES NOT HAVE A MONETARY POLICY.  They opt to use an Exchange Rate Policy adopted in the early 1980’s when the economy was in deficit.  It has been effective in the past when managed with a non internationalisation policy whereby offshore parties cannot borrow more than SGD 5 million from onshore sources.

It is stated in this 2001 paper that the “basic philosophy underlying Singapore’s exchange rate policy is to preserve the purchasing power of the SGD, in order to maintain confidence in the currency and preserve the value of worker’s savings, especially their CPF balances. Over the years, the managed float has served Singapore well in this respect. Inflation and interest rates have been low, expectations are for the SGD to appreciate over time.”


I am not saying that Singapore does not want to emulate the Swiss monetary policy. Switzerland had to resort to a currency peg last year when implied forward rates crashed to negative. The repo curve and government bonds are still trading negative.

Their system remains stable because their Swiss Libor is fixed. They have an interest rate policy.

Despite SGD’s glorious appreciation this year, nothing is near the negatives of last year. That is because the carrot of re-centreing was not dangled this year which would result in an instant profit.

Source : Wikipedia

Singapore will never be a reserve currency.

  1.  non internationalisation policy.
  2. Inflows are only interested in the once off windfall of a re-centreing when inflation becomes too much to bear.

Market mayhem in Aug last year when 6M Sor fixed hugely negative at -0.99% resulting in messy loan pricings and the derivative markets.


An interesting development is in the recent semi annual Macroeconomic Survey and a closed door briefing apparently to private sector analysts.

Suggestions were made as to whether a shift to an interest rate  framework was warranted.

The central bank’s stance was to stay status quo.  Nonetheless, still worthy of note.

No Speculations Here

But if the country is going to go ahead and build itself up into a financial centre to rival HongKong.  Surely  internationalisation becomes an issue of competitive necessity ?

With half the population moaning and lambasting the government on the soaring inflation and perhaps a time for change to an interest rate policy, I am severely disappointed that most of the responses I get from economists are for me not to ask about matters I am ignorant about, such as the complexities of central bank mechanisms.

There is one thing they cannot take away from me.

And that is my opinion.

So there.


Ps: My last Singapore post for a while. Don’t want to be arrested.