There is no new money creation arising from the purchase of RMGS by MAS.
“Monetary financing” of governments typically happens when central banks purchase government securities on the primary market and credit the proceeds to the government, i.e. the central bank “prints money” to help fund the government budget.
The purchase by MAS of RMGS is fundamentally different. It does not involve MAS creating Singapore dollars to give to the Government to spend. Instead, MAS is transferring excess OFR – its foreign currency assets – to the Government. In fact, the legislation allows MAS to transfer only foreign currency assets to the Government in exchange for RMGS. This eliminates the possibility of MAS creating Singapore dollars to finance government spending.
MAS’ subscription to RMGS is also not a form of “quantitative easing”. In some of the advanced economies, quantitative easing (“QE”) consists of the purchase of securities – including government securities – in the secondary market by the central bank, leading to an expansion of commercial banks’ deposit balances with the central bank. This represents an increase in the monetary base which supports the creation of new money. But MAS’ subscription to RMGS is not a transaction with commercial banks. It does not expand the banks’ balances with MAS. In fact, the size of MAS’ balance sheet does not change when it subscribes to RMGS. There is only a shift in the composition of its assets as explained above.
In short, the introduction of RMGS does not change the flow of funds leading to OFR being accumulated by MAS. Neither does it alter the rationale or principles upon which excess OFR is transferred from MAS to the Government. It only changes the mechanism by which this transfer of excess OFR is effected.
(This message is quoted from Internet information and is not the opinion of this website.)