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Ang Kar Yong (A0070877U

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GES 1002/SSA 2220 Global Dimensions of the Singapore Economy
D. Why was the Singapore dollar issued in 1967?
Before 1967, when the Federation became independent, there wasn’t any conflict or distrust
within the currency board. The Federation’s currency board then was based in Singapore.
However since the Federation was still dependent on the British armed forces in their fight
against the communist, and Singapore was the base of British armed forces, the Malayan
government was acceptable to the idea that the currency board was being based in
Singapore.
However in 1965, when Singapore went independent, there are more complications within
the currency board. It has then more than one government in the arrangement. The distrust
that mainly caused the political separation also affected the relationships in the currency
board. As a new currency board arrangement had to be signed and agreed upon since the
prevailing one would expire in 1967, this also contributed to and made it easier for the
separation of the existing currency board and hence the new Singapore dollar as well.
The two finance ministers of Malaysia and Singapore back then were Mr.Tan Siew Sin and
Dr.Goh Keng Swee respectively. Even though they were both from Malacca and were distant
relatives, the distrust they had for each other prevailed. Both the Singapore government and
Malaysia government thus agreed to go their separate ways, and issue different currencies.
The Malaysia currency is to be issued by its central bank – Bank Negara Malaysia; and the
Singapore currency is also created - the birth of the Singapore dollar.
Singapore chose to adopt the method of the past currency board in issuing its currency.
Doing so helps to ensure that all the Singapore dollars were be “backed” by reserves. This
simply means that the Singapore currency board would not issue Singapore dollars unless
the appropriate foreign currency was deposited with it, as set out in the exchange rate of the
Singapore dollar.
In addition, Singapore government and Malaysia government signed an interchangeability of
currency agreement, with a renewable term every two years. According to the currency
agreement, the valuation of one Malaysian ringgit is equal to one Singapore dollar.
With such agreements, the Singapore dollar was launched successfully. This was being done
even though Singapore did not have a central bank. The ministry of finance handled all

Singapore had then developed her financial institutions and economic conditions. the valuation of the Singapore dollar started gaining strength. was how Singapore eventually became a major financial centre by the end of 1970s. This led to many banks started setting up Asian dollar departments to handle the off-US shore dollars. With the start of Singapore dollar. where they were supported in setting up new branches. The banks borrowing and leading US dollars are not required to pay taxes from the profits earned through such activities. From then. Singapore launched the Monetary Authority of Singapore (MAS) in order to consolidate all financial regulations.Ang Kar Yong (A0070877U) GES 1002/SSA 2220 Global Dimensions of the Singapore Economy financial regulatory matters. What are some economic consequences of this currency separation? After the Singapore dollar was issued in 1967. and their share of deposits increased. And in 1973. While MAS allowed and gave them licenses to operate. The focus was on the local Chinese banks. An inhibiting factor was the 40% income tax payable on interest earned by such US dollars. The Singapore dollar went above the Malaysian ringgit. the Malaysia government and Singapore government failed to renew the interchangeability agreement. Thus the Singapore government decided to abolish this income tax to attract off-US shore dollars into Singapore. There were off-US shore US dollars that companies were holding abroad in order to avoid being taxed if these money were to return to the US. Foreign banks also started setting up their branches in Singapore. . the implementation of policies in encouraging foreign banks to start operating in Singapore. The money hence flowed into Singapore as off-US shorted US dollars based in Asia. these foreign banks were only allowed to mainly tap on the large financial flows arising from the US dollars and other currencies outside their countries of origin. attracting foreign countries’ financial flows into the Singapore economy. an Asian dollar market was soon established in 1968. In 1971. Banking became very profitable and together with the monetary policy of floating exchange rates. British banks that were established since the 19 th century were allowed to continue functioning but their expansion were limited. An official from the Bank of America suggested this idea to the Singapore government. going into the foreign exchange market aided the banks both local and foreign to flourish. which started in 1973 by President Nixon.