Media Releases
Published Date: 14 April 2015

MAS Explains Changes in OFR and FX Swaps

Singapore, 14 April 2015…In response to media queries, the Monetary Authority of Singapore (MAS) said today that certain market commentaries suggesting that MAS had been intervening heavily to support Singapore’s currency were incorrect.  These reports had erroneously cited the fall in Singapore’s official foreign reserves (OFR) and MAS’ FX swaps since mid-2014 as an indication of heavy intervention by MAS to support the Singapore Dollar Nominal Effective Exchange Rate (S$NEER).

2   The decline in the US Dollar (USD) value of the OFR in the last nine months till end-March 2015 was due to currency translation effects arising from the broad-based appreciation of the USD against the other major currencies in the OFR. 

3   The stock of FX swaps declined as MAS has relied more on MAS bills in its money market operations, and most of the proceeds from the maturing swaps were transferred to the Government for management by GIC over a longer investment horizon.  This is hence a transfer of assets, not a reduction in Singapore’s overall reserves.

OFR and currency translation effects 

4   Singapore’s OFR declined by USD 29 billion from June 2014 to USD 249 billion as at end-March 2015.1 This came after an increase of USD 105 billion over the preceding five years.

5   Contrary to some reports, the recent decline was due to currency translation effects, rather than MAS’ intervention operations. It reflected the sharp appreciation of the USD against the other major foreign currencies in the OFR. 

6   In a well-diversified portfolio, currency translation effects are inevitable, but not persistent or pronounced over the longer term.  MAS invests the OFR in a portfolio that is well-diversified by assets and currencies.  About three-quarters of the OFR are denominated in the major G4 currencies, i.e. USD, Euro, British Pound and Japanese Yen, with no single currency allocation making up more than one-third of the composition.

FX swaps and transfers to the Government 

7   FX swaps are one of the money market instruments that MAS uses to manage liquidity in the banking system.2 A substantial amount of FX swaps was accumulated by MAS during 2009-2011 when there were strong capital inflows to Singapore amid exceptional monetary easing in the major advanced economies. 

8   Over the period June 2014 to March 2015, the stock of FX swaps fell by USD 24 billion to USD 34 billion.  MAS has allowed its FX swaps to mature as it increased its reliance on MAS bills as a money market instrument.  

9   Most of the proceeds from the maturing FX swaps were in excess of what MAS needed in the OFR to maintain confidence in the Singapore Dollar, and hence were transferred to the Government for management by GIC over a longer investment horizon. 

1 The OFR is reported in USD under IMF requirements to facilitate cross-country comparison.

2 An FX swap is a contract in which one party borrows one currency from, and simultaneously lends another currency to, the second party based on the prevailing spot exchange rate of the two currencies.  When the contract matures, the flow of funds reverses based on the forward exchange rate as of the start of the contract.  For example, in the case of MAS withdrawing excess liquidity from the banking system using an FX swap, MAS will receive SGD from a counterparty in exchange for the payment of USD at the prevailing spot USDSGD exchange rate.  At maturity, MAS will receive USD from the counterparty in exchange for the payment of SGD at the forward exchange rate that was determined at the start of the transaction.