Switzerland in Singapore

U.S. military, commercial and foreign-aid ventures for years have pumped a stream of dollars into non-Communist Asia. Usually, the dollars flowed right out again--mostly to London or Zurich. Asian capitalists preferred to deposit coveted hard currency without encountering the burdensome exchange restrictions and withholding taxes on interest that they would meet at home. Now, however, a growing number of the dollars are traveling no farther than Singapore. There, U.S. bankers and local officials have created a Far Eastern version of the Eurodollar market--the $40 billion pool of U.S. money on deposit in private banks in Europe and loaned from there around the world.

Secrecy for Customers. The idea for what is now called the "Asian dollar market" originated with Johan D. van Oenen, former boss of Southeast Asian operations for the California-based Bank of America. His plans found favor with Singapore officials, who saw a chance for their island nation to play the sort of international banking role in the Orient that Switzerland plays in Europe. In 1968, the Singapore government repealed all exchange restrictions and interest-withholding taxes on deposits from foreigners, and promised to keep the identity of the depositors secret. Such secrecy is important to the Overseas Chinese, the merchant class of Southeast Asia. They feel--quite justifiably--that they have become targets for distrust in many countries where they operate.

The Bank of America started the Asian dollar market by switching to Singapore some deposits of Overseas Chinese that it had been holding in San Francisco. Twelve other Singapore banks--five locally owned and seven branches of such foreign institutions as New York's First National City Bank and the Bank of Tokyo--have also entered the market. Total Asian dollar deposits have risen from $31 million at the end of 1968 to $327 million currently, and are growing at the rate of $50 million a month.

The new market has great significance for Asia, a continent where hard currencies are scarce and the need for capital to finance economic growth is enormous. At first, the Singapore banks put the money to work as loans in Europe or the U.S. Now about a third of the Asian dollars are being loaned in Asia, and bankers intend to increase the proportion.

Rebuilding Viet Nam. Secrecy surrounds the identities of Asian dollar borrowers as well as depositors. It is known, however, that Asian dollar loans have helped to finance a government-sponsored hydroelectric plant in South Korea and the purchase of U.S. machinery by Indonesian manufacturers, and will shortly help major oil companies to purchase rigs for exploratory drilling off the coasts of Indonesia and Malaysia. Interest on the loans runs from 9% to 10%, which is about 1% above the rate paid to depositors.

The Asian dollar market is still too small to have caused U.S. officials headaches comparable to those created by the Eurodollar market. The latter has both drawn funds from and supplied money to the U.S. at times when Washington monetary authorities have found it highly inconvenient. In the U.S. there is some suspicion that many of the

Asian dollar deposits have reached Singapore through the Saigon black market and that the Asian dollar phenomenon will last only as long as the Viet Nam War. Impartial observers do not doubt that some "hot money" is reaching Singapore--but they point out that Asia's regard for hard currency and hunger for investment capital did not begin with the war, and will not end with it.

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