Singapore lifts restrictions on trading of its dollar

Asian Economic News, March 25, 2002

SINGAPORE, March 19 Kyodo

The Monetary Authority of Singapore (MAS) announced Tuesday it will liberalize its policy of non-internationalization of the Singapore dollar, but will retain some measures to prevent speculative trading.

With the changes, which will take effect Wednesday, all individuals and nonfinancial entities, including corporate treasury centers, will be exempted from Singapore dollar lending restrictions.

In addition, the MAS will also lift restrictions on nonresident financial entities in securing Singapore dollar loans for four key areas of financial activity.

These include asset swaps, cross-currency swaps and cross-currency repos, which can be transacted freely.

In addition, the MAS will lift the requirement that any lending of Singapore dollar securities exceeding S$5 million ($2.7 million) has to be fully supported by Singapore dollar collateral.

Financial institutions can also freely transact foreign exchange options with nonresidents, and will no longer need to offer documentary proof that these activities are for hedging purposes.

Neither will they have to withdraw Singapore dollar loans they extend to their clients for investment in financial assets and real estate when the investment is liquidated.

''These measures...should pave the way for even greater liquidity and range of activities in the foreign exchange, equity and debt capital markets'' Deputy Prime Minister and Finance Minister Lee Hsien Loong, who is also MAS chairman, said in a speech at a financial conference here.

''They should also attract offshore Singapore dollar activities back onshore,'' the minister said.

Singapore began liberalizing its policy of non-internationalization of the Singapore dollar in 1998. Last year, it announced that banks could lend Singapore dollars to nonresidents for investment in the city-state and freely transact Singapore dollar currency options among financial institutions based here.

However, Singapore will preserve measures to ward off speculative attacks on the currency by not allowing banks to provide Singapore dollar loans of more than S$5 million to nonresident financial entities when they have strong reason to believe the funds will be used for speculative trading.

Nonresidents must also convert their Singapore dollar loans into foreign currencies before they can use them to fund overseas activities.

The MAS is expected to give a technical briefing in the afternoon to provide a clearer explanation about the changes.