Singapore has accumulated significant foreign exchange reserves over the past few decades, becoming one of the countries with the highest reserves per capita globally. As a small, open economy dependent on external trade and finance, Singapore needs sufficient reserves to maintain confidence in its currency and economy, provide a buffer against external shocks, and ensure financial and macroeconomic stability.

Overview of Singapore’s Foreign Reserves

What are Foreign Reserves?

Foreign exchange reserves or forex reserves are external assets held by a country’s central bank in foreign currencies. They usually include foreign currencies themselves, bonds, treasury bills and other government securities. The reserves are used to back liabilities and influence monetary policy.

Singapore’s reserves are managed by the Monetary Authority of Singapore (MAS) and comprised predominantly of foreign assets and securities denominated in major currencies like the US dollar, Euro, Japanese Yen and Pound Sterling.

Current Size and Composition

As of July 2022, Singapore’s official foreign reserves stood at US$374 billion, ranked 9th highest globally. This was a decrease from US$398 billion in December 2021. In terms of import cover, Singapore’s reserves represent more than 9 months of goods and services imports.

The composition of Singapore’s reserves as of March 2022 was:

  • Foreign Currency Assets: 63%
  • IMF Reserve Position: 2%
  • SDRs (Special Drawing Rights): 3%
  • Gold: 1%
  • Other assets: 31%

Strong Growth Over Time

Singapore’s forex reserves have risen substantially since the country’s independence. In 1970, reserves stood at just US$114 million.

By 1990, they grew to US$20 billion, before surging to US$74 billion in 2000. This rapid accumulation of reserves was fueled by double digit economic growth rates during those decades.

In 2010, reserves reached US$217 billion and broke the US$300 billion mark by 2014. The reserves peaked at US$423 billion in Q2 2021, before declining mildly due to market valuations.

Reasons for Accumulating Large Reserves

There are several key reasons why Singapore maintains such sizable foreign exchange reserves:

1. Exchange Rate Policy

The primary purpose of Singapore’s reserves is to support its exchange rate-centered monetary policy. Under this system, the Singapore dollar is allowed to float within a policy band known as the SGD Nominal Effective Exchange Rate (S$NEER).

MAS intervenes in currency markets to keep the S$NEER within its targeted policy band, buying or selling SGD when necessary. This is only possible due to Singapore’s robust reserves.

2. Confidence and Stability

The large stockpile of reserves boosts confidence in Singapore’s economy and financial systems, both locally and internationally. It signals the country can readily meet its financial obligations and debt payments.

It also promotes monetary and financial stability. The reserves ensure Singapore has sufficient liquidity to weather economic crises or external shocks like financial contagion.

3. Future Investment Returns

Singapore invests the bulk of its reserves in long-term, high-grade assets that generate stable returns. These investment returns make a substantial contribution to the country’s budget and finances.

In FY2021, net investment returns from Singapore’s reserves amounted to S$19.1 billion. This was more than half of the S$34.4 billion budget surplus.

4. Support Fiscal Policy

The reserves can support fiscal spending during economic downturns, when additional stimulus is needed. For instance, Singapore tapped on its reserves to fund special Resilience and Solidarity budgets during the COVID-19 pandemic.

The reserves also provide collateral for loan programs that banks can access to lend to SMEs, helping them stay afloat during tough times.

5. Hedge Against Vulnerabilities

Despite being well-developed, Singapore still faces vulnerabilities common among small, extremely open economies. For example, it imports virtually all its energy needs and is heavily dependent on exports.

The substantial reserves serve as a hedge against potential disruptions to energy or trade flows, and movement in variables like commodity prices.

How Singapore Invests its Foreign Reserves

Singapore’s forex reserves are invested and managed by three entities:

1. Monetary Authority of Singapore (MAS)

MAS is entrusted with the bulk of Singapore’s official foreign reserves and has full discretion over how they are managed. Their mandate is to achieve good long-term returns while preserving capital.

MAS adopts a conservative, disciplined approach focused on portfolio diversification. The priority is on liquidity and capital preservation rather than maximizing yields.

2. Government of Singapore Investment Corporation (GIC)

GIC is a sovereign wealth fund established in 1981 to manage Singapore’s foreign reserves in excess of what is required for short-term liquidity management by MAS. It invests across a wide range of asset classes and regions.

As of March 2022, GIC managed S$690 billion in assets. GIC aims to achieve good long-term returns above global inflation over a 20-year time horizon.

3. Temasek Holdings

Temasek is an investment company fully owned by the Singapore government. It was formed in 1974 to hold and commercially manage some government investments and assets.

As of March 2022, Temasek had a net portfolio value of S$403 billion invested globally across sectors like financial services, telecoms and technology. It aims to deliver sustainable long term returns.

Foreign Reserve Management Strategies

MAS adopts several strategies and frameworks to prudently and optimally manage Singapore’s official foreign reserves:

Long-Term Orientation

MAS takes a long-term approach, accumulating reserves during times of surplus and drawing them down during deficit years. This provides stability and confidence.

Broad Diversification

Singapore’s reserves are spread across various asset classes, currencies, regions, sectors and counterparties to minimize concentration risks.

Focus on Liquidity and Safety

The reserves are kept highly liquid by investing predominantly in publically traded securities with high credit ratings. This ensures Singapore can readily access funds whenever needed.

Safety of principal is prioritized over returns. MAS maintains a plain vanilla portfolio and avoids risky, complex instruments.

Dynamic Benchmarking

MAS benchmarks the foreign reserves portfolio against optimal combinations of major global government bond indices based on long-term strategic asset allocation studies.

The benchmark compositions are dynamically adjusted to changing global macroeconomic and financial conditions.

Disciplined Rebalancing

MAS rebalances the reserves portfolio regularly back to policy benchmarks to maintain optimal asset class, currency and duration weights aligned with long-term objectives.

Transparency and Governance

Singapore scores highly in terms of transparency and governance over its foreign exchange reserves management:

  • MAS publishes extensive data on the reserves including size, composition, returns and governance framework.
  • Oversight is provided through regular audits, internal controls, and reserve management, risk and audit committees.
  • Senior management and the MAS Board are actively involved in formulating and monitoring adherence to policies.
  • MAS adopts international best practices recommended by the IMF and other global bodies.
  • GIC and Temasek also uphold high standards of transparency and reporting in managing their portfolios.

This high quality framework has helped reinforce confidence in Singapore’s prudence in managing reserves built up with taxpayer funds.

Benefits of Large Reserves for Singapore

Singapore’s substantial accumulation of foreign exchange reserves over past decades has provided key benefits:

Mitigation of Crises

The reserves have effectively cushioned Singapore against volatility from events like the Asian Financial Crisis in 1997-98 and Global Financial Crisis in 2008-09.

They provided reassurance of stability and prevented destabilizing speculation against the Singapore dollar.

Stable, Low Inflation Environment

Singapore’s large reserves support confidence in its exchange rate-focused monetary policy, contributing to a stable currency and low inflation for several decades.

Sustained Economic Growth

By promoting monetary and financial stability, the reserves have been integral to Singapore maintaining steady economic progress and growth.

National Savings and Investment

The reserves contribute substantially to national savings, providing a pool of capital that can be channeled into productive investments via entities like GIC to generate good long-term returns.

Strong International Standing

The substantial reserves boost Singapore’s creditworthiness and standing on the global stage, allowing it to readily tap international markets for funding.

Challenges and Concerns

However, Singapore’s massive foreign exchange reserves have also elicited some concerns and debates:

Opportunity Cost of Holding Reserves

Some economists have argued that the ‘opportunity cost’ of Singapore’s reserves accumulation strategy is too high, as the funds could have been alternatively used for infrastructure, social services or tax cuts.

However, the mercantilist approach of heavily prioritizing reserves has been integral to Singapore’s economic success over the decades.

Diminishing Marginal Returns

Critics contend that beyond a certain level, accumulating ever larger reserves leads to diminishing marginal benefits and returns.

Excess reserves could potentially be deployed in other productive ways like strategic investments that earn higher returns and support economic restructuring.

Currency Appreciation Pressures

Singapore conducts sterilized intervention in currency markets where it offsets forex purchases by withdrawing excess liquidity to prevent inflationary pressures.

However, economists argue sustained intervention leads to fundamental exchange rate appreciation over the medium-term. This could erode export competitiveness.

Exposure to Global Financial Markets

Singapore adopts a predominantly passive buy-and-hold strategy, exposing the reserves portfolio to potential valuation losses during global market selloffs like in 2008 and 2022.

More active management could generate higher returns during bull runs that offset losses in bear markets.

Outlook for Singapore’s Reserves

Looking ahead, Singapore’s foreign exchange reserves policy and management is likely to remain cautious and conservative. However, some shifts can be expected:

Gradual Decline in Reserves Level

With domestic labor force growth stagnating, Singapore may see slower economic expansion and reduced current account surpluses in future. This could gradually modulate the pace of reserves accumulation over time.

Review of Long-term Return Objectives

Authorities have signaled that the decades-long approach of prioritizing capital preservation may be reconsidered in the coming years. Higher return objectives could be set for the reserves portfolio.

Increased Active Management

MAS may complement more passive, indexed investments with selective active strategies, asset classes and regions that can enhance overall portfolio returns.

Greater Regional Diversification

Singapore has traditionally invested most reserves in advanced economy assets. But exposures to growing emerging markets could be boosted to capture their upside potential.

Adoption of New Investment Tools

New asset classes like private equity, real estate and infrastructure that match long investment horizons could be included. Strategies like options writing may also be deployed to cushion market volatility.


In conclusion, through disciplined, far-sighted policies over past decades, Singapore has accumulated substantial foreign exchange reserves that have underpinned its economic success and resilience.

While challenges remain in balancing growth objectives against prudence and returns, Singapore’s healthy reserves position the country strongly to navigate a more complex, uncertain global landscape going forward.

The optimal strategy will involve balancing passive stability and active dynamism, global diversification and regional focus, and capital preservation and return enhancement. With its strong governance and institutional capabilities, Singapore is well-placed to judiciously manage its reserves policy in coming years.