The Rise and Resilience of the Singapore Dollar June 6, 2023

The Rise and Resilience of the Singapore Dollar

Introduction

Did you know that Singapore issued its own currency on 12 June 1967?

Read on to find out about the history of the Singapore Dollar (SGD), its transformation throughout the years, how the Monetary Authority of Singapore (MAS) regulates monetary policies and influences the SGD, monetary trilemmas and the future of the SGD.


A brief history on why currency is important

Before currencies were introduced, history has it that physical goods and services were exchanged via a barter system where a transaction would only occur if a trader required what was offered by the seller. This resulted in a multitude of problems, since it was difficult to find a trader who offered the exact goods or services the other party wanted. Perishable products such as fruit and meat required timely deals, which posed as a huge challenge. Therefore, currencies were created to resolve these issues.

Currencies have been used throughout history, dating back as far as 770 BC in China and 600 BC where coins were made from a mixture of silver and gold stamped with pictures representing the denomination the coin represented [1]. The introduction of currency helped to resolve three key issues of the barter system. Firstly, currency was a great store of value, as it is usually made out of non-perishable material (metal, paper, plastic). Secondly, currency is a recognised medium of exchange which all traders could use, eliminating the need to search for a counter-party that wanted the goods or services offered. Traders could also use currency to purchase what they really wanted. Lastly, currencies are easily measured and divisible, making them a good unit for accounting, allowing more accurate pricing of goods and services.

Singapore currencies ranged from the silver dollar and the Straits Settlement dollar to the Malayan dollar and the Singapore dollar we use today. Singapore used to share the same currency as Malaysia, even after declaring independence in 1965. The Malayan dollar was used until 12 June 1967 when Singapore introduced its own currency. In 1971, the Monetary Authority of Singapore (MAS) was founded with sovereign power to undertake monetary policies [2].


Singapore Dollar in modern times

Despite being devoid of natural resources, Singapore has an AAA sovereign credit rating, the highest grade rating agencies can give to a country, signalling the lowest probability of a default. This AAA sovereign credit rating is only given to 11 out of 137 countries by the Standard & Poor’s rating agency. Singapore is the only country in Asia to attain this credit rating [3]. Furthermore, Singapore as a nation has a significant current account surplus and high levels of foreign reserves, giving the Singapore dollar an edge over other currencies in the region as a “safe haven” currency [4].

Country Standard & Poor’s
China A+
Hong Kong NR
Indonesia BBB
Japan A+
Malaysia A-
Singapore Aaa
South Korea Aa2
Thailand BBB+
Vietnam BB

Source : https://www.theglobaleconomy.com/rankings/credit_rating/

Singapore’s world-class financial centre status with business-friendly laws and an effective legal system have increased the reputation and status of the Singapore Dollar as a safe and trusted currency. On the global stage, the Singapore Dollar in global forex (FX) ranks in the top 10 currencies [5]. This is an impressive feat considering Singapore dollar’s free float and relatively small economy compared to the heavyweights and pegged/controlled currencies like HKD and RMB [6].


MAS and its influence on the foreign exchange rate of the Singapore Dollar

MAS has a similar mandate to other central banks like the US Federal Reserve, where the mission is to promote sustained non-inflationary economic growth, and a sound and progressive financial centre [7]. While the Federal Reserve conducts monetary policy through buying and selling government bonds to influence the amount of money in the finance system and overall interest rates, MAS’s monetary policy framework focuses on exchange rates. As Singapore is a small nation that needs to import a majority of its basic goods like food, water and daily essentials, MAS believes that exchange rate management is a more effective way to maintaining price stability for better long-term sustainable economic growth. MAS’s monetary policy manages the exchange rate of the Singapore Dollar against a trade-weighted basket of currencies (mostly consisting of neighbouring countries that Singapore actively imports from and trades with). This is also known as the Singapore Dollar nominal effective exchange rate (S$NEER) [8].

The Rise and Resilience of the Singapore DollarSource: Monetary Authority of Singapore


Infographics Credits: MAS Gallery Zone B “How Does The Exchange Rate Affect Inflation”

With high inflation over 2022-2023, MAS tightened monetary policy by raising the slope of its exchange rate-based policy band to allow the Singapore dollar to appreciate at a faster pace [9]. As a major importer of essential goods like food, consumer staples and medicine, Singapore’s buying power is increased by the appreciation of the Singapore. However, the export sector suffers from a stronger Singapore dollar.

Below is a graph of the exchange rate of the Singapore dollar to the Malaysia Ringgit (SGD to MYR). We can see that the Singapore Dollar appreciated from 3.1MYR to 3.4MYR per SGD, a 9.68% increase in 2022.

The Rise and Resilience of the Singapore DollarSource: Google Finance – Singapore currency to Malaysia currency

As MAS has a good reputation on the international stage as a reliable central bank, every monetary policy statement is well respected by traders and market participants. This allows MAS to increase or decrease the strength of the Singapore dollar with relative ease. Market participants trade in line with MAS’ target exchange-rate policy.


Singapore Dollar, MAS and the Monetary Trilemma

All central banks around the world are forced to pick two out of the three points to form a side of the Monetary Trilemma triangle. As it is impossible to achieve all three, central banks have to weigh the pros and cons to determine which side of the triangle they would like to focus on. The Monetary Trilemma is shown below:.

The Rise and Resilience of the Singapore Dollar

The three points of the monetary trilemma are: Free Capital Mobility, Fixed Exchange Rate and Monetary Autonomy. Central banks can only choose one of the sides and give up the opposite point. For example, a central bank may choose side A, which means that it will enjoy a fixed exchange rate (usually with a major currency like USD) and free capital mobility (no restrictions on movement of funds in and out of the country). However, the central bank will lose monetary autonomy as the central bank has to follow the pegged country’s monetary policy to maintain the exchange rate. Below are examples of how some countries have adopted each side of the Monetary Trilemma:

Country Free Capital Mobility Monetary Autonomy Fixed Exchange Rate Which Side
Singapore Y Y N B
China N Y Y C
US Y Y N B
Hong Kong Y N Y A


Singapore chose to give up a fixed exchange rate to maintain free capital mobility and monetary autonomy, similar to that of the US. As MAS owns the rights to produce and distribute the Singapore dollar, they gain significant advantage in terms of the freedom to adopt different kinds of monetary policies.

Due to MAS’s disciplined commitment and track record of sound monetary policies, the Singapore dollar has been a stable currency in Asia and a good store of value. This has allowed Singapore to not only prosper but also become a regional and global financial hub.


Conclusion

In conclusion, the currency of Singapore has come a long way to become what it is today, conducted policies to uphold its mission, segregating itself from political influence. As a result, the Singapore dollar has become a symbol of stability and a “safe haven” currency in the Asia Pacific region.


How to get started with POEMS

As the pioneer of Singapore’s online trading, POEMS’s award-winning suite of trading platforms offers investors and traders more than 40,000 financial products across global exchanges.

Explore an array of US shares with brokerage fees as low as US$1.88 flat* when you open a Cash Plus Account with us today. Find out more here (terms and conditions apply).

The Rise and Resilience of the Singapore Dollar

We hope that you have found value reading this article. If you do not have a POEMS account, you may visit here to open one with us today.

Lastly, investing in a community is much more fun. You will get to interact with us and other seasoned investors who are generous in sharing their experience and expertise.

In this community, you will be exposed to quality educational materials, stock analysis to help you apply the concepts, unwrap the mindset of seasoned investors, and even post questions.

We look forward to sharing more insights with you in our growing and enthusiastic Telegram community. Join us now!

For enquiries, please email us at cfd@phillip.com.sg.


Promotion

POEMS CFD MT5 Welcome Gifts and Bundles

The Rise and Resilience of the Singapore Dollar

From 1 March 2023 to 30 June 2023 (both dates inclusive), open a POEMS CFD MT5 account and trade with us to enjoy Apple Airpods, Trading Credits and Grab Vouchers.

This promotion is valid to all Phillip Securities Pte Ltd (PSPL) customers who have not opened a POEMS CFD MT5 Account.

*T&Cs Apply.


Reference:

Disclaimer

These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com