Speech by Mr. Louis Ng Kok Kwang, MP for Nee Soon GRC, at the Second Reading of the Monetary Authority of Singapore (Amendment) Bill (Bill No. 37/2021)
This Bill provides a much needed solution. Since 2016, foreign reserves managed by MAS has grown by an average of 11% each year, outpacing our GDP growth.
MAS needs only a fraction of these reserves on hand to manage our domestic price stability. The rest of it would be better utilised by our GIC, our sovereign wealth fund, to maximise investment returns.
This Bill provides a framework for that transfer to happen. The framework delicately balances the need to maximise investment returns with the need to give MAS enough flexibility to maintain price stability.
That said, I have four points of clarification.
Definition of excess foreign reserves
My first point is on the definition of excess foreign reserves.
Since 2019, MAS has said that it does not need more than 65% of GDP in foreign reserves to achieve its goal of maintaining medium-term price stability.
Can Minister share details on the reviews MAS has conducted in order to arrive at this calculation? What scenarios and factors did it consider?
Given that the 65% percentage has not changed in the past three years, can Minister share how regularly MAS plans to review the amount of foreign reserves it needs?
In addition, does MAS envision scope for this 65% percentage to be further reduced and for a greater proportion to be channelled for GIC’s investments?
This is given the fact that even in the worst months of the Asian Financial Crisis and the Global Recession, we saw very minimal, if any, decrease in foreign reserves managed by MAS.
Of course, I understand future crises and currency speculation may demand unusually high amounts of foreign reserves to combat.
Liquidity of GIC and Temasek’s foreign reserves
This brings me to my second point on worst-case scenarios.
In 2019, when MAS transferred $45 million to the Government for GIC to invest, MAS stated: “In the event of an extreme adverse scenario, the foreign reserves held by the Government are also available to ensure that MAS’ operations are not compromised.”
Can Minister share how foreign reserves held by GIC and Temasek would be availed to MAS in the event of such an extreme adverse scenario?
By design, `GIC and Temasek’s assets are less liquid and higher risk, so it seems unclear how the amount of foreign currency envisioned as necessary in such an extreme scenario could become quickly available.
Role of Government in setting redemption conditions
My third point is about the redemptions of the RMGS by MAS.
Can Minister explain what role will the Government play in setting conditions for the redemption of the RMGS by MAS?
Senior Minister Tharman had said that MAS will have “sole discretion to redeem the RMGS for foreign assets before maturity and without penalty.”
Yet Section 15B, subsection 2, of the amended Act states that the Minister’s agreement will be required in setting conditions surrounding the repayment and redemption of the RMGS. This seems to contradict the notion that MAS will have sole discretion.
It opens the door for a future Minister to institute a penalty for early redemptions – or indeed any other kind of condition.
Can Minister share why the Bill does not provide MAS with sole discretion on redeeming the RMGS prematurely and without penalty?
What conditions does the Ministry expect to set in relation to the repayment and redemption of the RMGS?
Limit of $580 billion
My fourth and final point is about the $580 billion limit.
Section 15A, subsection 2, of the amended Act limits the Government from accepting more than $580 billion of foreign reserves from MAS.
Can Minister share how it decided on $580 billion as the limit?
What purpose does the cap serve?
What is the principle and methodology by which the Government has set $580 billion as the cap?
In summary, I hope the Minister can clarify how MAS reached its definition of excess foreign reserves; how liquid GIC and Temasek’s foreign reserves are; what role the Government will play in constraining MAS’s RMGS redemptions; and how the $580 billion limit was determined.
Sir, notwithstanding these clarifications, I stand in support of the bill.
Watch the speech here.