singapores currency basket style of fx management suggested for the swiss national bank 889662015

A Bloomberg report out this morning suggests the Swiss National Bank (SNB) may be paying a price for being overly transparent in the foreign exchange markets. According to a prominent economist, the SNB could take a leaf out of Singapore’s book, which manages its currency with reference to a basket of currencies whose composition is confidential.

“The SNB needs to get room to maneuver again without the millstone of markets around its neck,” Julius Baer Group Ltd. Chief Economist Janwillem Acket said in an interview in Zurich. “A sophisticated Singaporean-style currency basket would allow the SNB a consistent policy of price stability. At the same time it would relieve the economy of the effects of hardly controllable currency shocks.”

In January, both Switzerland and Singapore resorted to major forex actions in respect of their currencies.

The SNB abandoned its supposedly sacrosanct 1.20 franc per euro ceiling in a sudden move that convulsed foreign-exchange markets across the globe.

The Monetary Authority of Singapore (MAS) moved to slow down the pace of appreciation of the Singapore dollar within its targeted band, seeking to protect the export oriented economy from competition from other Asian economies. The surprise MAS action, well ahead of its next policy meeting, sent the Singapore dollar plunging by the most in a single session since 2010. MAS said it intended to reduce the “slope” (the pace of appreciation) of the Singapore dollar against the basket of currencies. MAS also does not  disclose the aforesaid “slope.”

The Bloomberg article suggests that while the SNB is overly public in its dealings, Singapore’s model is short on information and MAS provides few interviews or details of its meetings. MAS is able to intervene as required to position the Singapore dollar within the undisclosed policy band. “It doesn’t say what range the band covers or where its currency is within the band,” said the article.

“It’s all about credibility really and if you’ve got an undisclosed basket you can have that kind of flexibility of arrangement but not be completely beholden to the market regarding to how you’re managing it,” said Chris Turner, head of currency strategy at ING Groep NV in London, in the Bloomberg report.

According to Vishnu Varathan, an economist at Mizuho Bank, Singapore, the MAS policy also ensures that the currency is not “overly vulnerable to speculative attacks.”