Risk Management, Trading & Portfolio Strategies

Are the world’s central banks beginning to crack?

Singapore's central bank has racked up huge losses in the past year, according to a new report.

Singapore’s central bank has racked up huge losses in the past year, according to a new report.

Recent news from Singapore's central bank, known as the Monetary Authority of Singapore (MAS), indicates that the Southeast Asian city-state is facing some big problems, especially with the appreciation of its currency, the Singapore dollar. According to Reuters, the MAS acknowledged this week that it lost roughly $8 billion during its last fiscal year, which ended on March 30. The losses stemmed largely from a decline in interest and dividend payments on its foreign investments and currency holdings, both of which combined to create a tough monetary climate in which to survive.

"We made good investment returns, but when measured in Singapore dollars these gains were more than offset by the strength of the currency," MAS managing director Ravi Menon said during a press conference.

Menon went on to stress that the overall strength of the positions held by the MAS guarantees the long-term viability of the city-state's central bank. Yet the development calls into question whether or not other monetary institutions around the world are feeling the pinch of a low-growth, low-interest rate environment. 

Another factor in the MAS complications was the fact that, during the 2012 fiscal year, no less than 22 separate "fixed-income" financial institutions were cited and fined for illegal actions, ranging from illegal drug trades to terrorism financing. These revelations cast doubt on the ability of the MAS to control its finance sector, which is an important part of the wider Asian economy.

Only time will tell whether or not the MAS debacle is just an anomaly in a volatile system or the first canary in a dangerous mine shaft. Either way, investors need to protect themselves by taking advantage of state-of-the-art portfolio risk management software such as SmartStops.

Our innovative tools allow investors to create automated "triggers" that stop losses from mounting when risk levels begin to rise. Click here to see how SmartStops work in a real-world example. 

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