Monetary Policy in Singapore and the Global Financial Crisis

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Challenges for the Singapore Economy

Asset Backed Securities Loan Facility (TALF), which purchased asset-

backed securities collateralized by student loans, credit card loans and

loans guaranteed by the Small Business Administration, and the US

Government agreed to buy assets and equity from financial institu-

tions through its Troubled Asset Relief Program (TARP).

Moreover, with interest rates close to zero central banks had effec-

tively begun to increase the monetary base through ‘quantitative

easing’ or the monetizing of debt. In the UK the Bank of England

bought gilts and corporate debt to increase liquidity and the Bank of

Japan purchased medium and long-term government bonds and asset-

backed securities and equity and paid for them by ‘printing money’.

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In the US the FED extended its balance-sheet with new assets and lia-

bilities without sterilization. Even the European Central Bank

engaged in the practice by increasing the range of assets it was pre-

pared to accept as collateral. More unorthodox measures were

introduced where necessary and in many cases governments stepped

in to guarantee bank deposits to prevent ‘a run on the bank’ or the

switching of deposits to other countries, such as the Irish Republic,

where such guarantees were already in place. In the UK the govern-

ment took troubled bank Northern Rock into national ownership in

February 2008 following a ‘run on the bank’ in 2007 and acquired a

significant stake in other threatened banks, such as the Royal Bank of

Scotland. Rescue packages guaranteed potential losses and credit guar-

antees allowed banks to issue bonds backed by government loans.

In Asia, where the direct financial effects of the global crisis

were much less severe, governments tended to respond with more

orthodox monetary and fiscal policies (apart from Japan which had

been fighting deflation since the early 1990s and whose central

bank had been engaged in explicit quantitative easing since 2001),

including monetary easing to ensure adequate liquidity and main-

Monetary Policy in Singapore and the Global Financial Crisis

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Other, more creative methods, used to increase liquidity have included the Bank of

Japan’s lending of foreign exchange reserves to Japanese companies operating

abroad, such as Toyota, and letting small and medium sized enterprises borrow using

cuttlefish and sea slugs as collateral.

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