Monetary policy in Singapore is centred on the management of the exchange rate. As an international financial centre with open capital markets, we are exposed to large and sometimes, volatile capital flows. To facilitate the effective conduct of our monetary policy and to avoid large swings in our $ exchange rate, we have a policy of discouraging the internationalisation of the $ However, we recognised that the trade-off was a less vibrant capital market, particularly the debt market. So we have progressively relaxed the specific restrictions over the past six years, while maintaining the intent of the policy. The results have been positive. The non-internationalisation policy is now down to two basic safeguards to discourage speculation in the $ - banks may not lend $ to non-resident financial institutions in order to speculate on the $ and non-resident borrowers who raise $ through bank borrowings or on our capital markets must swap or convert these $ to foreign currencies before remitting them abroad. This stance remains appropriate, and continues to underpin the effective conduct of our monetary policy. Nevertheless, there is scope for further fine-tuning. We have decided that non-resident, non-financial issuers of $ bonds and equities will no longer be required to swap or convert their $ proceeds into foreign currencies before remitting abroad. Non-resident, financial issuers of bonds and equities will still have to do so. This will give the issuers greater flexibility in managing their $ funds.

Second, individual countries need to press on with unfinished financial reforms and take judicious steps to liberalise the financial sector. Greater regional cooperation On regional cooperation, countries have clearly recognised the benefits of greater trade integration, driven by the forces of globalisation. To facilitate the integration process, ASEAN has accelerated the timetable for the formation of an ASEAN Free Trade Area. Last October, the leaders decided to commit to creating an ASEAN Economic Community, giving for the first time a supranational cast to ASEAN’s aspirations. The ASEAN+3 process that links ASEAN with China, Japan and South Korea, ought eventually to evolve into an East Asian Economic Community that may include Australia and New Zealand. ASEAN is also negotiating free trade agreements with key trading partners. In addition to a Comprehensive Economic Partnership with Japan, ASEAN has targeted FTAs with China and India by the end of this decade. Meanwhile, individual ASEAN countries are already concluding FTAs with China, India and Japan. More recently, regional countries have also embarked on various initiatives to deepen capital market cooperation and integration in the region. For example, the EMEAP Group, comprising 11 central banks and monetary authorities in the East Asia and Pacific region, has launched the Asian Bond Fund I. The group is now working towards launching the local currency-denominated Asian Bond Fund 2. The ASEAN+3 member countries have also made significant progress to develop regional bond markets under the Asian Bond Market Initiative and to establish a regional financing arrangement through the Chiang Mai Initiative.