Establishment of the Monetary Authority of Singapore

The Monetary Authority of Singapore (MAS) is Singapore’s de facto central bank and regulator of the financial sector. It was established by the Monetary Authority of Singapore Act of 1970 and began operation on 1 January 1971. MAS’ main functions included conduct of the nation’s monetary policy; acting as the government’s banking and financial agent; managing the foreign reserves; regulating, supervising and monitoring the banking and finance sector; and fostering the growth of Singapore’s financial industry (The Monetary Authority of Singapore, 1971, p.24). Singapore’s currency was not under MAS’ purview, however, that was kept separate under the Board of Commissioners of Currency until 2002.

 

Multiple agencies with central bank functions

Prior to the creation of MAS, a number of government departments and agencies managed the various monetary functions associated with a central bank. For example, the Commissioner of Banking and the Commissioner for Finance Companies were responsible for the regulation and supervision of banks and finance companies; the Exchange Control Department had oversight of all issues regarding foreign exchange; the Department of Overseas Investment was in charge of the government’s external assets; and the Accountant General oversaw the sale of treasury bills, raising of domestic loans, management of the clearing house system and lender of last resort in the banking system. All these organisations were directed and co-ordinated by the Ministry of Finance (MOF). Furthermore, these government bodies would have weekly meetings at MOF to discuss and decide on the country’s policies (Monetary Authority of Singapore, 1971, pp. 23-24). During periods of financial difficulties, additional meetings would be arranged and ad hoc working groups created (The Straits Times, 23 Sep 1969, p. 8).
 
Establishing a central bank

The case for establishing a central bank in Singapore was first raised by then Minister for Finance Dr Goh Keng Swee in his speech to the Economic Society of Singapore on 20 September 1969 (Goh, 1995, pp. 124-125). In his speech, Goh noted that Singapore’s monetary system was “doing well” and able to perform “the purposes of credit creation or flexible control over money supply”. However, he admitted that the monetary system was an “untidy system” and might not work in the long run. He said it was necessary for Singapore to set up a central bank so that the “untidy scatter of elements making up the Government structure of the monetary system can be collected together in one house” (Goh, 1995, pp. 124-125). Goh further added that, apart from streamlining the monetary system, “a coherent structure would give the organisation a sense of purpose and direction” and “develop the high level of professional expertise needed in the conduct of monetary affairs”. It would also enable a more efficient decision-making process, which would be essential during difficult situations (Goh, 1995, pp. 124-125).

 

Setting up the Monetary Authority of Singapore

Goh put forth the Monetary Authority of Singapore Bill, which proposed the establishment of the MAS, at the first parliamentary reading on 22 July 1970 (Parliamentary Debates: Official Reports, 22 July 1970, Vol. 30, col. 133). On 2 September 1970, Hon Sui Sen, Goh’s successor as Minister for Finance, presented and defended the Bill’s parliamentary reading. During the second reading, Hon noted that while the various government organisations were managing Singapore’s monetary system well, “the increasing complexity of modern banking and monetary management makes it necessary to streamline the system”. Establishment of the MAS was necessary to “enable a coherent and uniform policy to be developed for all monetary matters” and to develop expertise in central bank operations (Parliamentary Debates: Official Reports, 2 September 1970, Vol. 30, col. 212).

 

Role of MAS

In the reading, Hon also listed the powers, duties, functions and assets of the government to be transferred to the MAS as part of the centralisation process. As banker and financial agent to the government, the MAS would issue demand drafts and make remittances, accept government deposits, and manage the government’s public debt and external assets. In addition, the authority would also implement the Local Treasury Act and the Development Loans Act of 1967 for the issue, purchase, sale, discount, and redemption of Government treasury bills (Parliamentary Debates: Official Reports, 2 September 1970, Vol. 30, col. 213).

 

To regulate and supervise the financial sector, the MAS would exercise authority under the Banking Act of 1970, the Finance Companies Act of 1967, and the Exchange Control Ordinance of 1953 in a wide range of matters. These included the licensing of financial institutions; enforcing the cash-reserve ratio and the liquid asset ratio in the banking system; advising banks on interest rates for deposits and loans; regulating lending activity; and purchasing gold and foreign currencies. The MAS would also be designated the lender of last resort and would be allocated a paid-up capital of S$30 million (Parliamentary Debates: Official Reports, 2 September 1970, Vol. 30, col. 213).

 

However, the Finance Minister emphasised that the MAS would not exercise note-issuing functions. These functions would remain vested in the Singapore Currency Board. As a result, the Currency Board would continue as an independent statutory authority. Hon explained that it was important for the Currency Board to maintain this continuity so that its operations and assets backing currency issue would not be affected, thus maintaining confidence in the Singapore dollar (Parliamentary Debates: Official Reports, 2 September 1970, Vol. 30, col. 212).

 

The Monetary Authority of Singapore Act

The Monetary Authority of Singapore Bill was then passed (Parliamentary Debates: Official Reports, 2 September 1970, Vol. 30, col. 216). On 22 October 1970, the Bill became an Act of Parliament after President Yusof bin Ishak assented to it (Government Gazette. Acts Supplement, 22 October 1970, Act 42 of 1970, p. 453). On 26 December 1970, the Monetary Authority of Singapore Act went into force and the MAS commenced operations on 1 January 1971 (Government Gazette. Subsidiary Legislation Supplement, 24 December 1970, Sp.S 341/1970, pp.1301-1302).

 

Board of directors

As stipulated in the MAS Act, the Authority is governed by a board of directors. The board was chaired by the Finance Minister with the Permanent Secretary (Economic Development) of MOF being his deputy. The other board members were the Accountant-General and four directors appointed by the President of Singapore. One of the appointed directors would serve as managing director, overseeing the Authority’s day-to-day operations and administration (Government Gazette. Acts Supplement, 22 October 1970, Act 42 of 1970, pp. 456-457). As Hon Sui Sen was then Finance Minister and George Edwin Bogaars was then Permanent Secretary (Economic Development) of the MOF, they were named Chairman and Deputy Chairman respectively. The other Board members were Accountant-General Chua Kim Yeow, Michael Wong Pakshong, Reginald Quahe, Richard Hu, and R. H. Ho. Michael Wong Pakshong, who was then managing director of the Overseas Chinese Banking Corporation (OCBC), was appointed Managing Director of MAS (Government Gazette, 24 December 1970, G.N. 3982-3983, pp. 5044-5045).

Sources

The information in this article is valid as at 2011 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject. Please contact the Library for further reading materials on the topic.

Subject
Economy