The Monetary Authority of Singapore (MAS) was born in turbulent times in 1971. Then, The US dollar was under intense pressure, due to mounting inflation and balance of payments problems brought on by the Vietnam War and Great Society programmes.

  The MAS has three responsibilities:

 - ensuring a strong and credible currency as one of the key pillars of macroeconomic policy

 - overseeing the financial sector

 - promoting the development of the financial industry

  In August 1971, just months after MAS was formed, the US suspended convertibility of the US dollar into gold, plunging international currency markets into turmoil. In June 1973, the Bretton Woods system of fixed exchange rates finally collapsed, and the Singapore dollar was floated.

  As a result, the Singapore Government enshrined a strong and credible currency as one of the key pillars of macroeconomic policy, and charged MAS with the responsibility of ensuring it. Tight fiscal discipline, a healthy balance of payments, and a vibrant Singapore economy underpinned the steady strengthening of the Singapore dollar.

  With the progressive dismantling of exchange controls in the 1970s, MAS maintained an explicit policy of not encouraging the internationalisation of the Singapore dollar. It limited the extension of bank credit in Singapore dollars to non-residents except for economic activity, and buttressed this with some restrictions on interbank Singapore dollar derivatives, such as currency and interest rate swaps and options, which might have helped financial players to leverage or hedge their positions. This policy made it harder for would be speculators to short the Singapore dollar, and signalled unambiguously the MAS's disapproval of such speculation.

  Until recently, MAS did not reveal its view of the exchange rate, what it had done, or what it intended to do. But going forward, MAS recognises the need to be more communicative and less opaque about its exchange rate policy. Hence it has been making half-yearly monetary policy statements announcing our prevailing policy stance. It has also published the movements of the trade-weighted Singapore dollar, hitherto a closely guarded secret. It envisages that if market participants and the public understand its policy stance better, there will be less uncertainty, and policy implementation will be more effective.

  The MAS has reviewed and refined its policy on the non-internationalisation of the Singapore dollar policy, and has liberalised it, leaving only the most essential restrictions in place. This has enabled the bond market to take off.

  Major challenges lie ahead. The MAS has to manage exchange rate policy in an increasingly volatile market, build a sound and responsive regulatory environment that allows the financial industry to thrive, and promote Singapore as a financial centre even in the midst of adverse external conditions.

  The MAS will groom a corps of competent and committed economists, supervisors, and investment managers within MAS. But this will not be sufficient. It also has to reinforce its team with talent from industry and abroad. It already has foreign and mid-career professionals among its ranks, but it must attract more such persons. Only by building a truly world-class MAS team, will it succeed in its mission - to promote macro-economic stability, and a sound and progressive financial centre.

The Full Speech by DPM LEE Hsien Loong