The document discusses Singapore's monetary policy approach of managing its exchange rate against a basket of currencies within an announced policy band. It notes that Singapore employs capital management techniques to insulate from speculation and protect its soft currency peg, increasing financial stability. The document argues that New Zealand should adopt a similar approach of managing its exchange rate to protect exporters, rather than relying solely on interest rate adjustments which fuel property speculation and damage the tradable sector through an elevated currency.

1. Questions Let’s look again at monetary policy

2. No magic bullet! Many things contributed to this problem

3. But how depressed do you want to be? Page 3 “Singapore has the answers”

4. No magic bullet! Well perhaps there is….. Let’s look at Singapore

5. They knew what effect monetary policy has on their economy Page 5 “Singapore has the answers”

6. We where leading GDP per capita till 1984!Yes that was the year we floated the dollar Page 6 “Singapore has the answers”

7. Which country would you want to export from? Page 7 NZD to USD last 12 months Singapore $ to USD last 12 months “Singapore has the answers”

8. Trade Weighted Index matters Like Singapore, we need to protect our exporters by managing the exchange rate within acceptable bounds relative to our trading partners. Page 8 “Singapore has the answers”

9. Singapore's success was not an accident Since 1981, monetary policy in Singapore has been centered on the management of the exchange rate. The primary objective has been to promote price stability as a sound basis for sustainable economic growth. The Singapore $ is managed against a basket of trading partner currencies The trade-weighted exchange rate is allowed to fluctuate within a “policy band” level and direction of which is announced to the market periodically The exchange rate policy band is reviewed to ensure that it remains consistent with the underlying fundamentals of the economy. The band can move up or down (to allow for expected appreciation or depreciation) The level and slope of the band may also be adjusted The adjustments are made in a manner that is designed to promote price stability. Thus the type of exchange rate employed is very different from a traditional fixed exchange rate. Page 9 “Singapore has the answers”

10. Singapore's success was not an accident In addition Singapore employed Capital Management Techniques with the purpose of Insulating from disruptive speculation Protection of the soft FX peg Increased financial stability Page 10 Types of Capital management techniques Objective of capital management techniques “Singapore has the answers”

11. Singapore is an acknowledged success Page 11 “Singapore has the answers”

12. Radical policies? Only from a New Zealand perspective

13. Optimal Bank Regulation and Monetary Policy Optimal Bank Regulation and Monetary Policy, John J. Seater, October 2000, The Wharton Financial Institutions Center "Optimal monetary policy and bank regulation are simultaneously determined, implying that there must be tight coordination between the central bank and the regulator." "Bank regulation affects the money supply, so it ends up being chosen simultaneously with and therefore influenced by monetary policy. However, bank regulation directly affects output, so monetary policy affects output indirectly. Optimal choice of monetary policy takes this indirect effect into consideration." "Bank regulation should be active rather than passive, continually changing in response to economic conditions.” Page 13 “Singapore has the answers”

14. Optimal Bank Regulation and Monetary Policy Optimal Bank Regulation and Monetary Policy, John J. Seater, October 2000, The Wharton Financial Institutions Center “New results are that monetary policy affects the expected level as well as the variance of output, bank regulation should change continually in response to the state of the economy, and bank regulation and monetary policy should be tightly coordinated. This last result has important implications for the institutional arrangements for conducting regulatory and monetary policy” Page 14 “Singapore has the answers”

15. Should Financial Flows Be Regulated? Gerald Epstein, July 2009, Political Economy Research Institute (PERI), University of Massachusetts, Amherst "capital management can enhance democracy by reducing the potential for speculators and external actors to exercise undue influence over domestic decision-making either directly or indirectly (via the threat of capital flight)" "Capital management techniques can promote financial stability through their ability to reduce currency, flight, fragility, and/or contagion risks" "Capital management can discourage less desirable types of investment and financing strategies by increasing their cost or precluding them altogether" Page 15 “Singapore has the answers”

16. What we do by contrast

17. How we destroy our economic sovereignty RBNZ Forecasts higher inflation Consumption increases RBNZ Increases Interest Rates This attracts foreign funds House / Farm prices increase NZ money supply increases More careless lending NZ$ exchange rate increases Financial Failures Carry trade drives up NZ$ Tradable economy stalls Page 17 “Singapore has the answers”

18. Banks via the OCR fueled the last bubble Money in circulation increased as the OCR went up Flooding the market place with money will fuel inflation Which will further increase the OCR Page 18 “Singapore has the answers”

19. Our OCR only effects tradable inflation Page 19 “Singapore has the answers”

20. Monetary policy does matter(example) Monetary Policy Demand for Credit Asset Appreciates Yes Floating Where does the bank get the best return X No Pegged Money to lend X No Managed The monetary polices of Korea and Singapore are designed to protect their productive economy Page 20 “Singapore has the answers”

21. Export vulnerability (2007) [D] Volume of currency traded Country’s GDP Value of exports Country’s GDP Country’s GDP World GDP = x ÷ Page 21 Don’t have our form of monetary policy ! “Singapore has the answers”

22. The extent to which NZD is traded (2007) Times GDP Volume of currency traded Country’s GDP = Page 22 “Singapore has the answers”

23. FX traders love volatility (It’s the US…. yeah right!) Page 23 All measured a % variation against the USD “Singapore has the answers”

24. Stability matters Would you invest in an exportbusiness where… revenue could vary by 60% (while your production is constant) your funding could not be guaranteed beyond a few months the cost of funding was linked to property speculation and inflation This is why New Zealand has one of highest participation rates and one of the lowest productivity rates Page 24 “Singapore has the answers”

25. The results….. Business v Housing (excluding agriculture) Page 25 “Singapore has the answers”

26. Equity matters and it’s eroding! A stalled export sector is only part of the damage caused by the inflow if capital Not surprisingly the increased debt is eroding our net equity to GDP New Zealand Net International Asset Position Page 26 “Singapore has the answers”

27. Banking behavior REALLY matters Banks took advantage of the last upswing They managed the inflow of funds attracted by the workings of the OCR mechanism The inflow was then passed on to eager property investors Dramatically increasing national debt Lifting the OCR, exchange rate and thus killing exports Page 27 “Singapore has the answers”

28. Yes we need a bigger Kiwi Bank! Page 28 “Singapore has the answers”

29. The scourge of property speculation The pyramid selling scheme that is property speculation doesn’t create any sustainable jobs earn any foreign currency or pay any tax Yet its existence has created a vacuum to suck in foreign capital (and increase our national debt) drives up interest rates via the OCR as the property markets become inflationary drives up the exchange rate as the OCR increases made our housing amongst the least affordable in the OECD Page 29 “Singapore has the answers”

30. Remove the “poverty tax” Bill and Jim work together Bill invests in property Jim doesn’t Bill gets deductions against his PAYE reducing his tax Jim must therefore carry a higher % of the tax burden When Bill sells his house he doesn’t have to repay The lost tax, or the lost tax and interest or the lost tax interest and opportunity cost So in effect a portion of Jim’s earnings (via tax) has ended up in Bill’s pocket. This process is a poverty tax on all hardworking productive New Zealanders. Why would you allow something that is actually destroying our country to become a tax on our poorest people and our exporters. Page 30 “Singapore has the answers”

31. Singapore delivers Page 31 “Singapore has the answers”

32. Singapore has no natural resources Page 32 “Singapore has the answers”

33. Current account gives options Page 33 “Singapore has the answers”