Accounting of Singapore's Official Foreign Reserves and Reserves Management Government Securities Assets

Mr Leong Mun Wai asked the Deputy Prime Minister and Minister for Finance whether Official Foreign Reserves and Reserves Management Government Securities assets are fully counted as net assets that are part of Past Reserves for the purposes of calculating the Net Investment Returns Contribution, in view that section 22 of the Currency Act 1967 which provides that the Monetary Authority of Singapore’s assets must not be less than the face value of currency in circulation, is still in force.

The Ministry of Finance had previously responded to questions on Official Foreign Reserves (OFR) and Reserves Management Government Securities (RMGS).

When the Monetary Authority of Singapore (MAS) intervenes in the foreign exchange market in response to capital inflows, it accumulates foreign assets or OFR. The rise in MAS' OFR assets is matched by an increase in bank deposits with MAS, which are MAS' liabilities. Hence, there is no increase in MAS' net assets.

We have also explained in this House, that RMGS facilitates the transfer of OFR in excess of what MAS requires to conduct monetary policy and support financial stability from MAS to GIC for longer-term management.

There is no change in MAS' net asset position when MAS subscribes to RMGS. Essentially, the reduction in its foreign assets or OFR is matched by a corresponding increase in its holdings of RMGS. There is also no change in the Government's net asset position, as an increase in the assets managed by GIC arising from the OFR transfer is matched by an increase in Government RMGS liabilities.

To illustrate with an analogy, there is no change in your net asset position when you move your savings from your bank account to a fixed deposit to earn higher returns. This is similar to the situation when MAS transfers OFR in excess of what it requires to GIC via RMGS to earn higher returns. We do not magically create new net assets out of thin air via the use of transfer mechanisms like RMGS.

In addition, the relevant assets for the purpose of calculating the Net Investment Returns Contribution would have accounted for MAS' assets including OFR and RMGS, and MAS' liabilities including currency in circulation.