ANCHOR OF ECONOMIC
AND FINANCIAL STABILITY
MANAGEMENT OF OFFICIAL FOREIGN RESERVES
As at 31 March 2015, MAS held S$341 billion (US$248 billion) of official foreign reserves (OFR) on its balance sheet. MAS invests the OFR conservatively in a well-diversified portfolio of cash, bonds and equities across advanced and emerging market economies, with investment-grade bonds in the advanced economies comprising the largest allocation in the portfolio. With regard to currency composition, about three-quarters of the OFR are denominated in the G4 currencies i.e. USD, EUR, GBP and JPY, with no single currency allocation making up more than one-third of the composition. The OFR are accounted for on a lower of cost and market valuation basis in MAS' financial statements
MAS' financial results are reported in SGD. The reported value of the OFR hence depends on the movements of the SGD vis-à-vis the foreign currencies in which the reserves are held. Such currency movements will result in translation effects in MAS' financial statements. These translation effects have no impact on the international purchasing power of the OFR, and hence do not affect MAS' ability to conduct exchange rate policy or provide a buffer in the event of a sharp deterioration in Singapore's balance of payments. Accordingly, it would not be meaningful to hedge against the SGD to mitigate translation effects.
Chart 4 shows the investment performance of the OFR for the last five financial years. The gains/losses of OFR, as represented by the gold bars in Chart 4, comprise two separate components – investment gains/losses (blue bars) and currency translation effects (grey bars). Holding the SGD exchange rate constant to strip out translation effects, investment gains in FY2014/15 amounted to S$10.4 billion. As in previous years, the gains were mainly from interest income and realised capital gains/losses from the sale of OFR assets, and have remained relatively stable for the last five financial years.
In FY2014/15, the negative translation effect was due primarily to the strengthening of the SGD against the EUR and the JPY, which was partly offset by the weakening of the SGD against the USD. The exchange movements of the SGD against the G4 currencies for the last five financial years are shown in the table.
Taking the investment gains/losses together with the currency translation effects, MAS' annual gains/losses1 from OFR over the last five financial years ranged from –S$10.4 billion to S$16.5 billion.
1 Gross of investment, interest and other expenses.
2 Positive figures represent an appreciation of the SGD, while negative figures represent a depreciation of the SGD against the foreign currency over the financial year.