1   Mr Tharman Shanmugaratnam, Senior Minister and Minister-in-charge of the Monetary Authority of Singapore (MAS), today moved the Monetary Authority of Singapore (Amendment) Bill 2021 (Bill) for First Reading in Parliament.

BACKGROUND

2   MAS is introducing amendments to the Monetary Authority of Singapore Act (MAS Act) that will empower it to subscribe to Reserves Management Government Securities (RMGS) issued by the Government. RMGS will facilitate the transfer of MAS’ Official Foreign Reserves (OFR) that are above what is required for conducting monetary policy and ensuring financial stabilityThe optimal level of OFR is determined by MAS with reference to meeting Singapore’s balance of payments needs and ensuring foreign currency liquidity for the domestic banking system during stress periods. , from MAS to the Government for longer-term management by GIC. 

3   Singapore’s monetary policy is aimed at ensuring medium-term price stability. MAS implements monetary policy by managing the nominal effective exchange rate of the Singapore Dollar (S$NEERThis is the trade-weighted basket of currencies managed by MAS. ) within a policy band that is consistent with domestic price stability. Where market conditions cause the S$NEER to be subject to significant appreciation or depreciation pressures that are inconsistent with domestic price stability, MAS may intervene in the foreign exchange market to sell or buy Singapore Dollars (SGD) to keep the S$NEER within the policy band. When MAS sells SGD to buy foreign currency, it accumulates OFR.

4   The OFR play an important role in MAS’ conduct of monetary policy by enabling MAS to defend the S$NEER during times of speculative pressures or financial crises. In 2019, MAS assessed that it should maintain OFR amounting to at least 65% of GDP on an ongoing basis. This level of OFR will provide a sufficiently strong buffer against stresses in the global economy and markets, to underpin confidence in Singapore’s exchange-rate centred monetary policy and the domestic financial system. 

5   Singapore’s positive net savings and persistent capital inflows arising from abundant liquidity in global financial markets has led to persistently strong appreciation pressures on the S$NEER. MAS’ intervention in the foreign exchange markets to dampen these pressures and keep the S$NEER within the policy band has led to a steady accumulation of OFR over the years. As at 3Q2021, MAS’ OFR amounted to nearly 115% of GDPBased on MAS’ estimate of Q3 2021 nominal GDP. . Given that this is significantly above the 65% threshold, there is scope for MAS to transfer OFR that is not needed for its conduct of monetary policy to the Government for longer-term investment by GIC.

6   Currently, transfers of MAS’ OFR are facilitated by a corresponding reduction in the Government’s SGD cash deposits with MAS as consideration. However, this transfer mechanism is increasingly facing constraints, as MAS’ accumulation of OFR has persistently outpaced the growth of Government’s deposits in recent years. Government’s deposits are not growing as quickly due to smaller fiscal balances.

KEY PROVISIONS IN THE BILL

7   In view of the limitations of the current transfer mechanism, the Bill will introduce amendments to the MAS Act to empower MAS to subscribe for RMGS, a new type of non-marketable security, that will be issued by the Government under the Government Securities Act (GSA)The Government Borrowing (Miscellaneous Amendments) Bill, which was introduced in Parliament in October 2021, proposes to merge the existing Local Treasury Bills Act (LTBA) into the Government Securities Act (GSA), to form the Government Securities (Debt Market and Investment) Act. in consideration for OFR being transferred. RMGS will provide MAS a new mechanism to facilitate transfers of OFR to the Government for longer-term management by GIC. The amount of OFR to be transferred to the Government will be at the sole discretion of MAS. MAS will also have sole discretion to redeem the RMGS for foreign assets before maturity and without penalty.

8   The Bill will allow the principal amount of a maturing tranche of RMGS to be reinvested into a new tranche of RMGS, if the principal amount is not required by MAS to support monetary policy implementation or financial stability, and the Government agrees to do so.

9   The Bill will put in place strong safeguards against potential misperceptions of monetary financingThe term “monetary financing” refers to the act of a central bank lending money to the Government to finance the Government’s spending and fiscal deficits. .

(a) First, MAS can only subscribe to RMGS for the sole purpose of facilitating the transfer of OFR, and MAS can only do so if the subscription does not compromise its objective of ensuring medium-term price stability.

(b) Second, MAS will only be able to use foreign currency assets (cash and non-cash assets) to subscribe to RMGS. This will reinforce the fact that RMGS will not be used to raise money (Singapore Dollars) to finance Government spending.

10   These new safeguards will complement the existing safeguard in the GSA. Under the GSA, the Government’s proceeds from borrowing are accounted for in the Government Securities Fund (GSF) and can only be used for investments. Thus, borrowings under the GSA do not increase the amount available for spending by the Government.

RELATED AMENDMENTS TO THE GOVERNMENT SECURITIES ACT 

11   Issuing RMGS under the GSA is therefore consistent with the existing policy to clearly delineate between borrowings for investment and market development purposes (under the GSA), and borrowings to finance infrastructure (under the Significant Infrastructure Government Loan Act (SINGA)). 

12   The Bill will also introduce related amendments to the GSA to facilitate the transfer of OFR to the Government via RMGS. 

13   First, the Bill will introduce a separate net issuance limit for RMGS within the GSA. A separate net issuance limit will ensure that the issuances of RMGS do not affect the planned issuances of other Government securities and Treasury Bills (should issuances of RMGS be higher than planned), and avoid creating additional unintended borrowing space for other Government securities and Treasury Bills (should the outstanding amount of RMGS be lower than expected). 

14   Second, the Bill will amend the GSA to allow foreign currency assets (both cash and non-cash) received in exchange for the issuance of RMGS to be accounted for in the GSF. This is currently not possible as the Government can only account for cash proceeds in the GSF. Allowing foreign currency assets (i.e. the OFR transfer proceeds) to be received from the issuance of RMGS draws a clear and direct link between the issuance of RMGS and the transfers of OFR, and further ensures that the proceeds from RMGS issuances cannot be used for monetary financing.