decrease in quantity of imports. Being small, this implies that Singapore has
a small domestic market and hence has to rely heavily on foreign markets to
export its goods, indicating its high degree of openness to foreign trade.
Singapores manufacturing exports have very high import content and thus
by appreciating the exchange rate of the Singapore dollar, it can keep
competitiveness. With a price-elastic demand, the low price of tis exports can
lead to a more than proportionate increase in the quantity demanded for its
exports, thus increasing the export revenue earned. This subsequently helps
to achieve a healthy current account balance a higher actual economic
growth and employment.
Conclusion
Due to the volumes of its exports and imports, Singapores exchange rate
policy is the most effective policy for achieving its key macroeconomic goals.
The exchange rate policy that the MAS has adopted has helped Singapore
achieve price stability in the last few decades. However, the record of low
inflation in Singapore can also be attributed to the continued use of supplyside policies. Furthermore, this modest and gradual appreciation has instilled
greater investor confidence in Singapores currency and this has even
attracted large MNCs to set up its headquarters in Singapore. Due to
Singapores sound economic policies, such as its exchange-rate policy,
supply-side policy and trade policy, this has led to greater economic growth
for Singapore, both in the short run and the long run.