TREASURY BILLS

7.25 p.m.

The Minister for Finance (Mr Lim Kim San): Mr Speaker, Sir, I beg to move,

That this Parliament resolves, in accordance with section 2 of the Local Treasury Bills Ordinance (Chapter 69), that the Minister be authorised to borrow, by the issue of Treasury Bills in the Republic, sums not exceeding Malayan $500,000,000 in amount.

Sir, under the provisions of section 2 of the Local Treasury Bills Ordinance, the Government is empowered to issue Treasury Bills in the Republic up to an amount not exceeding $150 million under a resolution made by the Legislative Assembly on 20th December, 1963.

The approval of this House is now requested to raise the limit to $500 million for two main reasons. First, when Singapore was in Malaysia and after Singapore Day up to 22nd April, 1967, the Central Bank of Malaysia was operating in Singapore. As part of their liquidity requirements, commercial banks were allowed to hold Government securities and Treasury Bills of the Singapore Government or of the Malaysian Government. Now that we have taken over supervision of the banking system in Singapore, banks will have to adjust their liquidity holdings. In other words, if banks in Singapore are now holding Malaysian Treasury Bills and securities, they will have to convert them to Singapore securities and Treasury Bills. Similarly, banks in Malaysia will have to convert their holdings of Singapore securities to Malaysian securities. In practice, however, banks in Singapore have been holding largely Malaysian securities and Treasury Bills. In view of the adjustments now necessary, there will, therefore, be a sudden increased demand for Singapore issues. It is, therefore, necessary for the Singapore Government to issue more Treasury Bills to meet the demand for such securities by the banks.

Second, besides the liquidity holdings by banks, these banks as well as other financial institutions, including Government statutory bodies, also have short-term surplus funds which they wish to invest profitably. Unless there is an outlet for such funds in Singapore, it is likely that the money will go to other financial centres. The Government, through the issue of Treasury Bills and its own securities, therefore, provides an investment outlet for such short-term funds. Recent trends indicate that more of such short-term funds will be forthcoming in the future. Therefore, more Treasury Bills have to be issued by the Government to take up such funds.

Members may wish to know that Treasury Bills of 91 days' maturity are issued on tap to statutory bodies and are offered on weekly tender to banks and the public. Tap Bills carry an interest rate of 5 per cent per annum while the average rate for Tender Bills is 4.9 per cent per annum. The amount outstanding on these issues are: Tap Bills - $31.5 million; Tender Bills - $109.7 million. In view of the two developments which I have outlined above, it is likely that the demand for such bills will increase. The authority of Parliament is therefore requested to enable Government to issue Treasury Bills up to an amount not exceeding $500 million.

Mr Speaker, Sir, it is hoped that by the issue of more Treasury Bills, there will develop in time an effective short-term money market for such bills. Such a money market will arise as, out of the bills issued, a certain part or percentage would be held by banks and other financial institutions on a revolving basis. In other words, when a certain issue of such bills matures, they will be replaced by purchases of new bills. Such bills will also be used by banks for trading among themselves or for discounting with the Accountant-General in order to meet deficits in their daily clearing. The larger banks in Singapore have indicated that they will be able to provide a steady market for Treasury Bills to which they will be able to service short-term investment funds of the smaller banks. For instance, a small bank with a cash surplus on a particular day may deposit such cash at a larger bank, which will then purchase Treasury Bills from the Government. In this way, the smaller banks will find profitable use for their surplus funds and the bigger banks will then provide a market for Treasury Bills from the Government. In time to come, such operations will evolve into an active and effective short-term money market.

Sir, I beg to move,

Question put, and agreed to.

Resolved,

That this Parliament resolves, in accordance with section 2 of the Local Treasury Bills Ordinance (Chapter 69), that the Minister be authorised to borrow, by the issue of Treasury Bills in the Republic, sums not exceeding Malayan $500,000,000 in amount.