CURRENCY BILL

Order for Second Reading read.

4.45 p.m.

Dr Goh Keng Swee: Mr Speaker, Sir, I have His Excellency's recommendation to proceed with the Bill. I beg to move, "That the Bill be now read a Second time."

Owing to the changes in the political status and economic circumstances of the five Participating Governments represented on the Board of Commissioners of Currency, Malaya and North Borneo, it was felt necessary to revise the 1950 Currency Agreement, which was the working basis of the Currency Board. Representatives of the five Participating Governments accordingly met in Kuala Lumpur in February this year, and after considerable discussion, settled and initialled a new Currency Agreement as set out in the Schedule to this Bill. Each Government then undertook to enact the appropriate legislation to ratify the new Currency Agreement as early as possible so that the new Agreement could be brought into force. The Federation of Malaya, Sarawak and North Borneo have already enacted appropriate legislation, and a similar purpose is intended for Singapore by the Currency Bill now laid before the House.

I do not think I need explain the provisions of the Bill itself, which are simple or will be clear from the Explanatory Statement. But in regard to the Currency Agreement set out in the Schedule, I should point out some of the major provisions.

Firstly, as is befitting the sovereign nation of the Federation of Malaya, the self-governing State of Singapore, the State of Brunei, Sarawak and North Borneo, the new Agreement provides that the Currency Board should be responsible to only the five Participating Governments. Under the old 1950 Currency Agreement, a Participating Government could abrogate the Agreement only with the approval of the United Kingdom Secretary of State for the Colonies. Another clause provided that the Secretary of State should be the arbitrator in any dispute between the Participating Governments, and his approval had to be obtained even for relatively less important matters such as the design of new notes and coins. Under the new Agreement, no reference whatsoever is necessary to the authority of the Secretary of State, as all references to him have been deleted in the new Agreement. The essence of the Agreement is that the Board of Commissioners of Currency is now responsible to the Participating Governments, whose decisions on almost all important points must be unanimous.

Secondly, for reasons which the Singapore Government is in agreement, the Federation of Malaya is now given increased representation on the Currency Board. Of the seven members on the Board, two will the appointed by the Federation of Malaya Government, and one each by the Governments of Singapore, Brunei, Sarawak and North Borneo, together with one independent member whose appointment must be with the unanimous consent of the Participating Governments. The Singapore and Federation representatives will have three votes each, while the other members will only have one vote each. It can, therefore, be seen that the Federation Government will have a predominant voting strength of six votes, and it also provides the Chairman of the Board in the person of probably the Honourable the Finance Minister as well. The Singapore representative would be the Deputy Chairman of the Board.

Thirdly, which is probably the most important in our viewpoint, is that the new Agreement provides for the investment of a portion of the assets of the Currency Fund in the territories of the Participating Governments. The 1950 Currency Agreement provides only restricted avenues of investment, and we saw the strange phenomenon of the assets of territories which needed development finance urgently being invested overseas and used for financing the development of other countries, some of which are financially more affluent than ourselves. Although it is recognised that reserves of the Board should at all times be adequate to maintain confidence in the Malayan dollar, it was felt that at the same time assets of the Currency Fund should be mobilised to some extent in initiating the economic development of the countries the Board serves. Hence clause 10 (4) of the new Bill provides for the investment of not more than $300 million of the assets of the Currency Fund in securities guaranteed by any of the Participating Governments, to be spread over a period of three years from the date when the Agreement comes into force. The distribution of assets for local investment is governed by the Third Schedule to the Agreement, which provides that the reserves available to a Participating Government shall be determined directly by its share in the profits of the Currency Surplus Fund in the preceding financial year. In turn, the share of profits is governed by the Second Schedule to the Agreement, where, broadly, the formula for distribution is based on the amount of currency circulating in the three territorial divisions of Borneo, Singapore and the Federation of Malaya. On the basis outlined above, Singapore's share of the $300 million of the assets of the Currency Fund available for investment in the securities of the Participating Governments is about $60 million. An important provision in the Second Schedule to the Agreement is that under section (iii) the method of profit apportionment may from time to time be varied by agreement between the Governments concerned, and with the unanimous approval of all Participating Governments. The door is therefore open for Singapore and the Federation of Malaya to undertake discussion to review the method of profit sharing between the two territories. Any change in the profit sharing formula would in turn affect the assets available for investment in Singapore.

Fourthly, clauses in the new Currency Agreement provide for, and anticipate the future, when a Participating Government may wish to withdraw from the Currency Agreement, thus leading to the dissolution of common currency arrangements provided by the new Agreement. Clause 17 of the Agreement stipulates that when any Participating Government wishes to withdraw from the Agreement, a notice must be lodged with the Currency Board 18 months prior to the date of actual withdrawal. This period is regarded as the minimum time during which other Participating Governments can make alternative arrangements. The clauses that follow up to clause 20 are clauses providing for the winding-up of the Board should any Government withdraw. At this point, I should perhaps say that while the Federation Government has agreed to the new Currency Agreement, it at best contains provisions for a transitional period from a common currency arrangement to one where she will be able to control and regulate her own currency. It is thought unlikely that she will continue a common Currency Agreement indefinitely. However, the new Agreement is a working basis to gradually transform the present currency structure to a more independent one.

To sum up, the new Currency Agreement will at one and the same time ensure the stability of the Malayan dollar and enable a part of the Currency Fund's assets to be used for financing our own economic development. It also provides for the future through the winding-up clauses, and yet is solidly linked to the present. In conclusion, I need not Stress that it will secure the maintenance of a sound, stable and respected currency which is a prerequisite for economic stability and prosperity.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time.

Mr Speaker: Is it a convenient time to suspend?

Dr Toh Chin Chye: Yes.

Mr Speaker: I therefore suspend this Assembly. I shall take this Chair again at half-past five.

Sitting accordingly suspended at 4.56 p.m. until 5.30 p.m. Sitting resumed at 5.30 p.m.