Therefore we moved last year to open up the Singapore market further to foreign banks. We hoped that this would spur efficiency and innovation among the local banks, and push well-run banks to seek scale and expand at home and abroad. We were convinced that unless we opened up, this transformation would never take place. There is no substitute for real competition. We did not want the liberalisation to weaken our banks and destabilise the financial system. So we are not taking a big bang, laissez faire approach. Instead, we are phasing the liberalisation over five years, and opening the market to financially strong, committed foreign players. At the same time, we are motivating the local banks to strengthen themselves. We have raised disclosure standards to international norms, and we now require banks to publish details of their nonperforming loans and inner reserves, which were previously closely guarded secrets. We are also raising corporate governance standards, which lie at the heart of the improvements required in Asian banking systems. We instituted nominating committees on bank boards, comprising a majority of independent directors. Their remit is to ensure that persons appointed to the boards and  BIS Review 76/2000  8  to key executive positions are selected for their expertise, and their ability to contribute to the bank and to the interest of all shareholders. Most important of all, we are requiring the banking groups to make a clear separation between their financial and non-financial businesses.
Over the last three years, we have systematically reviewed every part of the financial industry. We have freed up the use of compulsory savings in the state retirement fund scheme, demutualised and merged the stock and futures exchanges, deregulated brokerage commissions, opened up all areas of the financial industry to new entrants, and taken steps to develop the bond market. I will focus on two specific changes, to illustrate the trade-offs and considerations in designing our liberalisation programme. The first is the review of our policy of not encouraging the internationalisation of the Singapore dollar. The second is our decision to open up the domestic market to foreign banks, while giving impetus to local banks to strengthen themselves. Singapore dollar non-internationalisation policy We have long maintained an explicit policy not to encourage the internationalisation of the Singapore Dollar. Being small and vulnerable, we are especially wary of large and volatile capital flows distorting our exchange rate, and thus damaging our real economy. Our international trade is 3 times our GDP, higher than any other country in the world. If our exchange rate moved up and down like the Japanese Yen against the US dollar, we would be in deep trouble. Singapore has no capital or exchange controls. Anyone can move funds freely into and out of Singapore, whether in $ or foreign currencies. The non-internationalisation policy does not try to prevent currency speculation per se, or to limit the flow of capital into and out of Singapore.