Since 1981 when GIC was set up, MAS has been making periodic transfers to the Government of OFR that has been in excess of what it needed to conduct monetary policy and ensure financial stability. This has enabled the Government to invest foreign reserves through GIC on a longer-term basis while still ensuring that MAS has sufficient OFR to carry out its mandate.
Previously, these transfers of OFR were accompanied by a drawdown of Government deposits with MAS.
- As reflected on MAS’ balance sheet, this involves a reduction in both its assets and liabilities, with no change in MAS’ net assets: in exchange for the OFR that MAS transfers to Government (i.e. a reduction of MAS assets), the Government draws down its deposits with MAS (i.e. a reduction in MAS liabilities).
This transfer mechanism worked as long as the Government ran sizeable surpluses, contributing to significant deposits with MAS. With the decline in government surpluses and deposits with MAS, a new mechanism is needed to enable the transfer of excess OFR from MAS to the Government.
Hence the issuance of RMGS by the Government to MAS in exchange for OFR..
- As reflected on MAS’ balance sheet, this leads to a replacement of one form of assets for another. MAS’ transfer of foreign currency assets (OFR) will be replaced by a domestic asset that is a claim on the Government (RMGS).
Whether the transfer of OFR from MAS to the Government is achieved through a drawdown of Government deposits with MAS or the issuance of RMGS to MAS, there is no change in MAS’ net assets.
(This message is quoted from Internet information and is not the opinion of this website.)