This was the only way to avoid a sharp tightening in capital markets which, with all certainty, would have fuelled a greater economic contraction and, possibly, a deflationary scenario. A specific additional problem of the euro area was the so-called “fragmentation” in the transmission of the common monetary policy. This means that the financing conditions of governments, and also of firms and financial institutions, vary significantly across countries, as a result, among other factors, of the different sovereign risk premia in the euro area. In fact, the cost of government debt in each country usually acts as a “floor” or “baseline” for 2  corporate and bank debt. Consequently, in those countries whose governments have a better outlook for the repayment of their debt and, consequently, which have more favourable financing conditions, the borrowing costs of firms and households, through bank credit, will be lower. The initial phase of the COVID-19 crisis had an asymmetrical effect on euro area countries. This meant that certain countries, such as Italy and Spain, which already had substantially high levels of public debt, were hit harder by the first wave of the virus both epidemiologically and in terms of their reliance on more vulnerable industries such as tourism and hospitality. Borrowing costs duly rose much more markedly in these countries. Faced with this situation, the ECB Governing Council decided to announce new monetary policy measures with the dual n objective of reducing fragmentation and increasing the accommodative stance of monetary policy. For this reason, we adopted two types of measures.

The role of the reserves as an endowment from which to draw a steady stream of income to finance the government budget will become even more important in the years ahead. An ageing population will mean higher expenditures, especially for healthcare, and slower economic growth will mean lower tax revenues. The third purpose of the reserves is to serve as a stability fund. More specifically, the reserves help to maintain confidence in Singapore’s exchange rate-centred monetary policy framework. As Singapore is a small and highly open economy, inflation and aggregate demand are more significantly influenced by the exchange rate rather than interest rates. Singapore’s monetary policy is therefore centred on managing the exchange rate of the Singapore Dollar against a basket of currencies within a policy band. 2/7  BIS central bankers' speeches  The reserves play an important role in enabling MAS to conduct monetary policy and to secure macroeconomic stability. How are the reserves accumulated and managed? So, how are the reserves accumulated and managed? As I mentioned earlier, Singapore’s reserves are held and managed in three distinct pots: the MAS, GIC, and Temasek. The government sets the overall investment objectives for the three entities and monitors the risk and return profile of the total reserves. But it plays no role in the investment decisions by the three entities, which are made on purely professional grounds. MAS, as Singapore’s central bank, manages the OFR. The process of accumulating or using OFR is intricately tied to MAS’ conduct of monetary policy.