Few economic events of recent years have attracted as much attention as the announcement by the People’s Bank of China on July 21, 2005, that henceforth the exchange rate of the Renminbi (RMB) would not be kept fixed in relation to the U.S. dollar, but would be managed relative to a basket of currencies and adjusted more frequently via a “managed float” arrangement. Various commentators picked up on statements by informed observers to the effect that the new system would be somewhat like that of Singapore. Burton (2005), for example, stated that China and Malaysia “... adopted a version of its [i.e., Singapore’s] managed floating exchange rate system after abandoning their fixed currency pegs against the US dollar.” (Also see Areddy, et. al. (2005).) The central aims of the present paper are to explain the Monetary Authority of Singapore’s exchange rate/monetary policy system, which has been unique among the world’s central banks, and to consider the likelihood that Chinese exchange rate policy will in fact closely resemble that of Singapore. It will be argued that in practice the degree of similarity is likely to be very small, at least for several years to come.
