Asian Currency and Domestic Banking Units

In the late 1960s, it was recognised that given appropriate support and incentives, a market similar to the Eurodollar could be developed in Singapore. As a site for this offshore market, Singapore offered several advantages including a sound financial infrastructure, an excellent communications network, a stable government and a geographical location with a time zone advantage. To allow for better domestic monetary control, any financial institution seeking approval to operate in this Asian Dollar Market (ADM) was required to set up a separate book-keeping unit for such transactions. This Asian Currency Unit (ACU) is permitted to accept deposits from, and lend to other banks and non-bank customers in all currencies other than the Singapore dollar. Transactions with residents were initially subject to various restrictions but those restrictions have been removed with the liberalisation of exchange controls in 1978.

Banks' Singapore dollar transactions are separately booked in the Domestic Banking Unit (DBU). Operationally, the difference between a DBU and an ACU lies in the booking of Singapore dollar transactions. While banks operating in Singapore must book all Singapore dollar transactions in the DBU, they may also choose to book foreign currency transactions in the DBU.

Nearly all commercial banks and merchant banks in Singapore operate ACUs. The ADM has since grown to a total asset size of US$503billion (as of end-May 2003). Besides interbank and non-bank lending and deposit-taking, ACUs are active in foreign exchange and derivatives, foreign securities, loan syndication and bond issuance activities. Transactions undertaken in the ACU qualify for tax incentives. Please refer to the section on Tax Incentive Schemes under the following link: Singapore Financial Sector.