How did Singapore become an international financial center?

From a poor country in the “third world”, Singapore took 30 years to become a leading financial center and keep the momentum to this day. “Hey Mr. Van Oenen, we want Singapore to become the financial center of Southeast Asia in 10 years” Dr. Albert Winsemius, Economic Advisor to the Government of Singapore, said when he called his friend who is a deputy director of a branch of an American bank in Singapore.

But Van Oenen, who is now in the UK, replied: “Okay, you go to London. You can develop it in five years”. It was 1968. When he arrived in London, Dr. Winsemius was brought before a large globe by Van Oenen in the boardroom.

Singapore has always affirmed its position in the international arena

Pointing at it, Van Oenen slowly explained. The world of finance begins in Zurich. Zurich banks open at 9 a.m, then Frankfurt, then London. In the afternoon Zurich closes, then Frankfurt, then London again. Meanwhile New York is open. Therefore, London transfers financial transactions to New York. In the afternoon, New York closed and they moved their business to San Francisco. But when San Francisco closed, the world went dark.

“Nothing happens until 9 am the next morning (Swiss time), which is when the Swiss banks open. If you put Singapore in the middle, before San Francisco closes, Singapore will take control”, suggested Mr. Van Oenen. This conversation is also recounted in Mr.Lee Kuan Yew’s memoirs. When Dr. Albert Winsemius shared this idea, he was the current Prime Minister of Singapore and realized what he had to do.

Lee Kuan Yew and the growth of Singapore’s economy

“Unlike Hong Kong, Singapore cannot build on London’s reputation as a financial center with a long banking history, nor can it rely on the help of the Bank of England, which represents its wealth of experience, reliability and financial standing. In 1968, Singapore was a Third World country,” Mr. Lee Kuan Yew wrote in his memoirs.

Building ‘soft infrastructure’

It is worth noting that the Singapore government from the beginning has viewed the financial services industry as not simply a means of supporting the development of other industries, but as a pillar of growth. To do this, Mr. Lee Kuan Yew uses a “developmental state” approach. Accordingly, the state identifies key industries that can contribute to GDP and issues appropriate policies to support it.

Right in 1968, Singapore decided to establish the Asian Dollar Market (ADM). Together with the parallel Asian Currency Unit (ACU), ADM has enabled foreign banks and financial institutions to enter Singapore’s financial services sector. In order for ADM and ACU to develop, Mr. Yew introduced tax incentives and incentives.

Initially, ADM was mainly an interbank market in Singapore, capable of holding foreign currency funds of foreign banks and then lending to banks in the region and vice versa. It then buys and sells foreign exchange and foreign currency financial derivatives called debentures, takes care of lending, issuing bonds, and managing capital. ADM grew to exceed $500 billion, approximately three times the size of the domestic banking market in 1997.

Modern and magnificent infrastructure

As Singapore’s financial services industry grows increasingly complex and internationalized with the proliferation of domestic and foreign financial institutions, the need for a more integrated approach to industry regulation and management becomes urgent. Thus, the Monetary Authority of Singapore was born in 1971. This agency plays two roles as central bank and financial regulator.

The Singapore Stock Exchange (SES) was then established in 1973. The SES was further consolidated with the Singapore International Monetary Exchange to form the Singapore Exchange (SGX), to accommodate the growing diversity of Singapore’s capital markets.

The formation of the MAS and SGX was an institutional response to the rapid growth in Singapore’s financial services sector during this period. Along with that, the island nation created a number of other financial-related institutions, leading the country through a period of further internationalization and diversification during the 1980s and 1990s.

Another obvious factor in Singapore’s rise has been Mr. Lee’s ability to take advantage of global financial fluctuations. This started in 1971 when the US decoupled the dollar from gold. He quickly seized the opportunity and further promoted Singapore as a regional foreign exchange hub, drawing on the background from ADM and ACU.

“In the years 1968 to 1985, we were virtually alone in the region, attracting international financial institutions by eliminating the capital gains tax on the interest income of non-resident depositors. All deposits in Asian dollars are exempt from payment requirements and legal reserves,” he recounted in his memoirs.

“Our financial hub is based on the rule of law, with an independent judiciary and a stable, competent, and clean government that pursues sound macroeconomic policies, the budget is almost bountiful every year. This resulted in a strong and stable Singapore dollar, coupled with a reasonable exchange rate, which prevented inflation from spreading in,” Lee Kuan Yew‘s memoirs said.

With strict regulations and strict supervision, MAS has helped Singapore develop into a financial center, avoiding a series of financial scandals for decades around the world. And in response to competition from international banks, MAS encourages the four largest local banks – known as the “Big Four” – buy and merge with small local banks to become bigger. The “Big Four” is ranked by Moody’s as one of the strongest and best invested banks in the world.

Along with developing “soft“ infrastructure, Singapore has also continuously invested in developing hard infrastructure for decades to meet the space needs of thousands of financial institutions. In the late 1970s, a project to build a 360-hectare Marina Bay area was born to replace the overloaded role of the existing Central Business District (CBD).

Magnificent administrative buildings behind Marina Bay

The Urban Redevelopment Authority (URA), sets a vision for Marina Bay to be “a place of 24/7 growth, prosperity and energy, where people live, work and play“. This area was immediately reclaimed and renovated through 7 stages, lasting until 1993, it was basically completed, create the appearance of Marina Bay today with a series of office buildings of international financial institutions.
Additionally, as a multi-use hub, those working in the financial sector also appreciate the integrated development that can combine offices with high-quality housing and lifestyle options in Marina Bay.

By 2014, Singapore was the fourth largest foreign exchange center in the world and had very high funding capacity in USD. In addition to the hundreds of multinational corporations that use Singapore as their regional headquarters, there are also about 4,000 Chinese companies that choose to launch when entering Southeast Asia.

In the 90s, Singapore really became one of the world-class financial centers with the fourth largest foreign exchange market after London, New York and only slightly behind Tokyo. But in early 1997, realizing that MAS was stagnant, Mr. Lee Kuan Yew campaigned for Mr. Ly Hien Long to be the Chairman of MAS since 1998.
MAS also liberalized entry into the domestic banking sector by allowing 100% foreign-owned banks to open more branches and ATMs. It removed foreign ownership restrictions on domestic bank shares, while requiring banks to set up board committees,
patterned similar arrangements in many American banks.

According to the consulting firm Viettonkin Consulting, there are three key factors for Singapore to become a financial center.

The first is the policy, with strict regulations and supervision, which has brought confidence to investors. This made Singapore financially stable, even during the 2007 – 2008 global financial.
Second, Singapore has a large pool of financial professionals. To secure a skilled workforce, the Institute of Banking and Finance of Singapore (IBF) and the Singapore Workforce (WSG) have engaged in training professionals with the necessary skill sets to help them thrive in the industry.

Singapore – The solid economic powerhouse of Southeast Asia.

The third is business infrastructure. Expenses such as wages and rent here have steadily increased. However, office rents in Singapore are still lower than in leading rival financial centers such as London, New York, Hong Kong and Tokyo.
Today, the position of financial center that this late prime minister established is still continuously consolidated. The Global Financial Centers Index, updated to September 2021, ranks Singapore as the fourth most influential financial center in the world, after New York, London, and Hong Kong. Compared to the previous ranking in March 2021, Singapore’s ranking continues to increase one level.

This ranking is made by Z/Yen Group (UK) and China Development Institute (China) every 6 months. Vietnam has no cities on the list yet. In Southeast Asia, along with Singapore, there are Kuala Lumpur (48th) and Bangkok (58th).
Looking back at this process, the Lee Kuan Yew School of Public Policy, National University of Singapore, concludes that Singapore’s growth as a global financial center has been made possible by a systematic approach, with the government taking active policy steps to establish a financial services industry in the island nation.