MONETARY AUTHORITY OF SINGAPORE BILL

Order for Second Reading read.

4.45 p.m.

The Minister for Finance (Mr Hon Sui Sen): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

In Singapore, as a result of historical factors, the various monetary functions normally associated with a Central Bank are currently being performed by a number of Government departments ;and agencies. For instance, the responsibility for the currency issue lies with the Currency Board, which is a statutory authority. Then, the Commissioner of Banking and the Commissioner of Finance Companies is responsible for the regulation and supervision of banks and finance companies, whilst the Exchange Control Department is responsible for all matters concerning foreign exchange. Finally, the Department of Overseas Investment in my Economic Development Division is responsible for the management of the Government's external assets, while the Accountant-General is responsible for the sale of Treasury Bills to banks and other financial institutions, the raising of domestic loans and the management of the clearing house system.

Quite clearly, the task of co-ordinating and directing the policy of these .diverse organisations makes for a full-time occupation and while the present system of ad hoc control by committee has worked reasonably well up to now, the increasing complexity of modern banking and monetary management makes it necessary to streamline the system. Apart from rationalising the structure and organisation of the system, the bringing together, under one single authority, of all these different organisations will enable a coherent and uniform policy to be developed for all monetary matters. In addition, it is hoped that with the passage of time will come the development of greater professional expertise. This is vital for the efficient functioning of a modern monetary system.

It is therefore proposed in the Bill now before the House that there should be established a Monetary Authority of Singapore, comprising the departments I have mentioned with the single exception of the Currency Board. It is considered, for the time being, that the currency-issuing functions of the Board should remain with it and that the Board should continue as an independent and separate statutory authority. The automatic mechanism of the Currency Board with its 100 per cent external assets backing has been and will be of great psychological importance in maintaining confidence in the Singapore Dollar. Thus the operations and the assets backing the Currency issue will be unaffected and will continue to be clearly identified. The Monetary Authority will therefore for the time being have no note-issuing functions.

I would now like to discuss in some detail the provisions of the Bill for the establishment of the Monetary Authority of Singapore. Part II of the Bill provides for the establishment, capitalisation and administration of the Authority. Clause 3 sets up the Authority as a body corporate. The authorised capital of the Authority will be $30 million, while the paid-up capital will be such amounts as may be approved by the Government from time to time. This is laid down in clause 5. Clause 8 provides for a Board of seven directors comprising the Minister for Finance, who will be the Chairman, the Permanent Secretary (Economic Development) of the Ministry of Finance, who will be the Deputy Chairman, the Accountant-General and four other members who will be appointed by the President. Of the four members appointed, one will be the Managing Director of the Authority. The Managing Director will be entrusted with the day-to-day administration of the Authority and will be answerable to the Board for his acts and decisions.

It is envisaged that the staff of the departments which I have named earlier will be transferred to the Monetary Authority. Clauses 17 to 20 of the Bill provide for this. It is intended that employees from these Government departments will be transferred to the Monetary Authority on terms no less favourable than those that they are enjoying with the Government. The value of their pension rights will be safeguarded in any Authority pension or provident fund schemes, The Authority shall act on the advice of the Public Service Commission in regard to appointments, promotions and termination of employment, dismissal and disciplinary control of its employees.

Clause 21 (1) will enable the Authority to take over the powers of the Government under the Banking, Finance Companies and Exchange Control Ordinances. It is further envisaged that it may be necessary in future for the Authority to administer other functions in any specified law relating to banking, investment or other financial matters, and provision for this is made in clause 21(2) .

It will be necessary to transfer to the Authority certain assets and liabilities of the Government arising out of statutory requirements in the banking and finance companies legislation. Banks and finance companies are required to maintain, as part of liquidity requirements, a statutory reserve with the Accountant-General based on 3� per cent of their deposit liabilities. This amounts to approximately $120 million. As the Authority will now be responsible for these matters, clause 21 (3) provides for the transfer of liabilities together with their matching assets to the Authority.

Clause 22 outlines in detail the powers of the Authority, e.g., it may accept deposits of money; issue demand drafts; purchase and sell gold and foreign currencies; purchase and sell Treasury' Bills and Government securities, etc. Clause 23 lays down the general principles under `which the Authority's funds may be invested.

The Authority in its functions as banker and financial agent to the Government will mainly be responsible for the managing of the external assets of the Government, undertaking the-issue and management of Government loans and of Treasury Bills. In this capacity, the exercise of powers by the Authority will remain subject to the respective legislation pertaining to these subjects. The Treasury Bills issue will be made under the Treasury Bills Ordinance, the issue of registered stock will be made under the Development Loan Act, while the investment of Government's external assets will be subject to the Financial Procedure Act.

Clauses 26 to 40 contain miscellaneous and transitional provisions which provide for such matters as the financial year of the Authority, submission of annual accounts, powers to make regulations, etc.

Sir, I beg to move.

Question proposed.

4.54 p.m.

Dr Augustine H. H. Tan (Whampoa): Mr Speaker, Sir, the establishment of' a Monetary Authority represents a welcome tidying-up operation, gathering together a number of important monetary and exchange activities hitherto exercised by disparate authorities. The inclusion of the Minister for Finance as Chairman of the Board of Directors will ensure close co-ordination between fiscal and monetary policies. The' Minister for Finance is also Chairman of the Board of Commissioners of Currency. It is not quite clear to me why the functions of the Currency Board are not being brought within the purview of the Monetary Authority or vice versa. The Finance Minister has mentioned that it is desirable to maintain confidence in the currency that we have at present. But I do think that we can still retain the automatic features of a currency issue while yet unifying matters relating to monetary policy, since control of the currency issue is intimately related to monetary policy in general.

As a general comment, I think Singapore has been eminently sensible in not following slavishly the adoption of institutions elsewhere. In most countries, the Central Bank exercises monetary authority autonomously and often not synchronously with fiscal policy.

Mr Speaker, Sir, I would like to welcome the establishment of a Monetary Authority of Singapore.

Mr Hon Sui Sen: Mr Speaker, Sir, I do not know whether I need answer the Member for Whampoa! He welcomes the establishment of the Monetary Authority. His remarks on the automatic mechanism being possible also under the Authority are, of course, accepted. This is quite possible. But I think in the circumstances in which we operate in Singapore and in the South-east Asian area, which has had some experience of "banana" currencies, there is, as I have explained, some psychological importance in showing that our money is well controlled under the Currency Board which does not allow for any manipulation of the note issue. I think this is important.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Hon Sui Sen].

Bill considered in Committee; reported without amendment; read a Third time and passed.