2. INTRODUCTION TO CENTRAL BANK A central bank, reserve bank, or monetary authority is the entity responsible for the monetary policy of a country or of a group of member states. It is a bank that can lend money to other banks in times of need. The oldest central bank in the world is the “Riksbank”, in Sweden, which was opened in 1668 with help from Dutch businessmen. This was followed in 1694 by the Bank of England, created by Scottish businessman William Paterson in the City of London at the request of the English government to help pay for a war. With the collapse of the gold standard after World War II, central banks became much more necessary and widespread. The US Federal Reserve was created by the Congress through the passing of the Glass-Owen Bill, signed by President Woodrow Wilson on December 23, 1913, whilst Australia established its first central bank in 1920, Colombia in 1923,Mexico and Chile in1925and Canada and New Zealand in the aftermath of the Great Depression in 1934. By 1935, the only significant independent nation that did not possess a central bank was Brazil, which developed a precursor thereto in 1945 and created its present central bank twenty years later. When African and Asian countries gained independence, all of them rapidly established central banks or monetary unions.
4. Monetary policy Central banks implement a country's chosen monetary policy. At the most basic level, this involves establishing what form of currency the country may have, whether a fiat currency, gold-backed currency (disallowed for countries with membership of the IMF), currency board or a currency union. When a country has its own national currency, this involves the issue of some form of standardized currency, which is essentially a form of promissory note: a promise to exchange the note for "money" under certain circumstances. Historically, this was often a promise to exchange the money for precious metals in some fixed amount. Now, when many currencies are fiat money, the "promise to pay" consists of nothing more than a promise to pay the same sum in the same currency. In countries with fiat money, monetary policy may be used as a shorthand form for the interest rate targets and other active measures undertaken by the monetary authority.
5. Currency issuance Central banks generally earn money by issuing currency notes and "selling" them to the public for interest-bearing assets, such as government bonds. Since currency usually pays no interest, the difference in interest generates income, called seignior age. In most central banking systems, this income is remitted to the government. The Although central banks generally hold government debt, in some countries the outstanding amount of government debt is smaller than the amount the central bank may wish to hold. In many countries, central banks may hold significant amounts of foreign currency assets, rather than assets in their own national currency, particularly when the national currency is fixed to other currencies.
6. Interest rate interventions Typically a central bank controls certain types of short-term interest rates. These influence the stock- and bond markets as well as mortgage and other interest rates. The European Central Bank for example announces its interest rate at the meeting of its Governing Council; in the case of the Federal Reserve, the Board of Governors.
7. Limits of enforcement power Contrary to popular perception, central banks are not all-powerful and have limited powers to put their policies into effect. Most importantly, although the perception by the public may be that the "central bank" controls some or all interest rates and currency rates, economic theory (and substantial empirical evidence) shows that it is impossible to do both at once in an open economy.
8. Policy instruments The main monetary policy instruments available to central banks are open market operation, bank reserve requirement, interest rate policy, re-lending and re-discount and credit policy. To enable open market operations, a central bank must hold foreign exchange reserves and official gold reserves. It will often have some influence over any official or mandated exchange rates.
9. Interest rates By far the most visible and obvious power of many modern central banks is to influence market interest rates; contrary to popular belief, they rarely "set" rates to a fixed number. Although the mechanism differs from country to country, most use a similar mechanism based on a central bank's ability to create as much fiat money as required.
10. Open market operations Through open market operations, a central bank influences the money supply in an economy directly. Each time it buys securities, exchanging money for the security, it raises the money supply. Conversely, selling of securities lowers the money supply. Buying of securities thus amounts to printing new money while lowering supply of the specific security.
11. Capital requirements All banks are required to hold a certain percentage of their assets as capital, a rate which may be established by the central bank or the banking supervisor.
12. Reserve requirements Another significant power that central banks hold is the ability to establish reserve requirements for other banks. By requiring that a percentage of liabilities be held as cash or deposited with the central bank (or other agency), limits are set on the money supply. In practice, many banks are required to hold a percentage of their deposits as reserves. Such legal reserve requirements were introduced in the nineteenth century to reduce the risk of banks overextending themselves and suffering from bank runs, as this could lead to knock-on effects on other banks.
13. Exchange requirements To influence the money supply, some central banks may require that some or all foreign exchange receipts (generally from exports) be exchanged for the local currency. The rate that is used to purchase local currency may be market-based or arbitrarily set by the bank. This tool is generally used in countries with non-convertible currencies or partially-convertible currencies. The recipient of the local currency may be allowed to freely dispose of the funds, required to hold the funds with the central bank for some period of time, or allowed to use the funds subject to certain restrictions. In other cases, the ability to hold or use the foreign exchange may be otherwise limited.
14. Margin requirements and other tools In some countries, central banks may have other tools that work indirectly to limit lending practices and otherwise restrict or regulate capital markets. For example, a central bank may regulate margin lending, whereby individuals or companies may borrow against pledged securities. The margin requirement establishes a minimum ratio of the value of the securities to the amount borrowed. Central banks often have requirements for the quality of assets that may be held by financial institutions; these requirements may act as a limit on the amount of risk and leverage created by the financial system. These requirements may be direct, such as requiring certain assets to bear certain minimum credit ratings, or indirect, by the central bank lending to counterparties only when security of a certain quality is pledged as collateral.
15. INTRODUCTION TO “MAS” The Monetary Authority of Singapore it was set up in 1971 to oversee various monetary functions associated with banking as well as finance. Before its establishment, monetary functions were performed by government departments and agencies. The MAS has been given powers to act as a banker to and financial agent of the Government. It has also been entrusted to promote monetary stability, and credit and exchange policies conducive to the growth of the economy. In April 1977, the Government decided to bring the regulation of the insurance industry under the wing of the MAS. The regulatory functions under the Securities Industry Act (1973) were also transferred to MAS in September 1984. The MAS now administers the various statutes pertaining to money, banking, insurance, securities and the financial sector in general. Following its merger with the Board of Commissioners of Currency on 1 October 2002, the MAS has also assumed the function of currency issuance
16. Powers, duties and functions of Authority in “MAS” Accept deposits of money and pay interest on such deposits. Issue demand drafts and other kinds of remittances made payable at its own office or the offices of agencies or correspondents. Purchase, accept on deposit and sell gold coin or bullion. Purchase, sell, discount and re-discount Treasury bills of the Government. Purchase and sell securities of the Government or of any public authority which have been publicly offered for sale or form part of an issue which is being made to the public at the time of acquisition. Grant loans, advances or other credit facilities to such financial institutions or class of financial institutions as the Authority may, from time to time, approve for periods not exceeding 3 months against. Invest in securities of the Government or of any public authority for any amount, and to mature at any time on behalf of staff and pension funds and other internal funds of the Authority. Purchase and sell currency, and purchase, sell, discount and re-discount bills of exchange and Treasury bills drawn in or on places outside Singapore. Borrow money, establish credits and give guarantees in any currency, inside and outside Singapore, on such terms and conditions as the Authority may think fit. Maintain accounts with central banks outside Singapore and with other banks inside and outside Singapore. open accounts for, and accept deposits from, the Government, public authorities, companies in which the Government or a public authority has a substantial interest, and companies which are deemed to be related to those companies by virtue of section 6 of the Companies, banks and other credit institutions in Singapore
17. Investment of funds Notes, coins, money at call and deposits in such country or countries as may be approved by the board. Treasury bills of such government or governments as may be approved by the board.
18. Authority as a banker to, and financial agent of, Government and manager of its external assets Whenever the Authority receives and disburses Government moneys, the Authority shall keep account thereof and may be paid an agency fee for its services.
19. Special loans to banks and financial institutions The Authority may, if it thinks such action is necessary to safeguard monetary stability, make a loan or advance to a bank carrying on business under the Banking or to such financial institutions or class of financial institutions as the Authority may, from time to time, determine against such form of security as the Authority may consider sufficient.
20. Power to issue directions to financial institutions The Authority may, if it thinks it necessary in the public interest, request information from and make, Recommendations to such financial institutions as the Authority may, from time to time, determine and may issue directions for the purpose of securing that effect is given to any such request or recommendation. Agents Establish agencies at such places outside Singapore as it rules and policy.
21. CONCLUTION Central banks plays an important role for all the countries economy, their function is based on the monetary and physical policy of particular economy the objectifies target is to protect and control the money market also financial sector of any economy in Singapore this movement they are concerning to sustain the financial market, thus they are trade oriented country, they want to keep the exchange market strong. They want to keep their currency strong. To do this they have oriented a strong monetary policy and physical policy. It is believe that we are global economic recession , which past 80yrs had not faced. There for in Singapore they target the to give more importance for job securities ,And keep their currency strong.
