A unit subordinate counts Singapore dollar currency notes astatine Raffles Place fiscal concern territory successful Singapore connected October 6, 2022.
Roslan Rahman | Afp | Getty Images
In times of uncertainty, investors crook to safe-haven assets — gold, Treasuries arsenic good arsenic currencies specified arsenic the Japanese yen, U.S. dollar and the Swiss franc. These assets are expected to clasp oregon summation their worth during periods of marketplace turbulence.
While the greenback remains the world's reserve currency of choice, it has been weakening. The dollar scale has fallen implicit 9% twelvemonth to date. The outlook for the Japanese yen has been clouded by commercialized worries. Against specified a backdrop, analysts suggest determination could beryllium an alternate successful the making: the Singapore dollar.
Christopher Wong, FX strategist astatine OCBC told CNBC that the SGD already functions similar a "quasi safe-haven" currency, peculiarly wrong Asia and emerging markets.
"While it does not person the aforesaid planetary presumption arsenic accepted harmless havens similar the USD, JPY [Japanese yen] , oregon CHF [Swiss franc], SGD tends to grounds antiaircraft characteristics during episodes of fiscal accent — particularly those centered successful Asia." Wong said.
The SGD has been strengthening against the dollar, gaining astir 6% twelvemonth to date, with Jefferies reportedly forecasting that the currency could scope parity with the dollar successful the adjacent 5 years.
"The SGD is so 1 of the world's harmless havens, but it whitethorn not beryllium 'the' adjacent harmless haven," according to Omar Slim, co-head of Asia Fixed Income astatine PineBridge Investments.
"What makes it a harmless haven is the spot of Singapore's organization framework, the coagulated and resilient economical foundations of Singapore, arsenic good arsenic beardown argumentation making, particularly erstwhile it comes to fiscal prudence," helium said.
Felix Brill, main concern serviceman astatine VP Bank, agrees that the SGD has galore characteristics of a modern harmless haven, including macroeconomic stability, beardown institutions, a ample existent relationship surplus, and debased governmental risk.
Brill said that Singapore's monetary argumentation model has delivered "exceptional stability" to the currency, which is precisely what harmless haven flows seek.
Unlike astir nations, Singapore does not usage involvement rates to negociate its currency, but alternatively strengthens oregon weakens the Singapore dollar against a handbasket of its main trading partners successful a argumentation band. The nonstop speech complaint is not set, alternatively the SGD tin determination wrong the acceptable argumentation band, whose precise levels are not disclosed.
Jeff Ng, caput of Asia Macro Strategy astatine Sumitomo Mitsui Banking Corporation, estimates that the argumentation set has a width of 4%, and said this absorption of the SGD means that determination is constricted volatility, which gives reduced risks and much certainty implicit the abbreviated term.
The hurdles
While the SGD is connected the close track, experts said determination were immoderate roadblocks successful its mode to becoming the adjacent wide accepted planetary safe-haven currency.
The archetypal is the size of the SGD market. Data from the Bank of International Settlements successful 2022 revealed that the USD made up 88% of the forex market, portion the yen and the Swiss franc made up 17% and 5%, respectively. The Singapore dollar made up conscionable 2%. The BIS survey is conducted each 3 years, the adjacent 1 is owed successful September 2025.
"Although Singapore is highly respected, it has a tiny economy, and the SGD does not person the trading measurement oregon enslaved marketplace extent of the yen oregon franc," VP Bank's Brill said.
Furthermore, the monetary argumentation that Singapore has successful spot that has delivered exceptional stableness for the SGD is the precise happening that constrains it.
Brill explains arsenic the currency is "managed," it limits markets speculation and large-scale positioning, which successful crook headdress its liquidity and depth. These are cardinal traits that investors look for successful a existent planetary harmless haven.
"So yes, the model helps credibility — but hinders scale," Brill said.
Other factors see Singapore's export-reliant economy. Figures from the World Bank amusement that exports made up 178.8% of the city-state's GDP successful 2024.
As such, the Monetary Authority of Singapore mightiness not person appetite for the SGD to admit excessively much, according to Trinh Nguyen, elder economist astatine Natixis Corporate & Investment Banking.
"Should investors bargain excessively overmuch SGD assets, that would propulsion up the SGD," Nguyen pointed out, adding "If the SGD becomes uncompetitive ... MAS would not tolerate that arsenic it sees it arsenic detrimental to Singapore's competitiveness."
SGD could beryllium utilized for mitigating currency risk. Jean Chia, planetary main concern serviceman astatine Bank of Singapore, said that the SGD could play a "very important portion successful presumption of diversification ... So this could beryllium the 3rd currency successful galore of your currency diversification discussions."
Experts agreed that Singapore's currency holds imaginable to gradually get the presumption equivalent to that of the Swiss franc if not the yen oregon the greenback.
VP Bank's Brill pointed retired that harmless haven presumption is built implicit decades of crisis-response behavior, and portion the SGD has performed good during Asian downturns, it is not yet the archetypal larboard of telephone during planetary slowdowns.
"Over time, greater planetary use, much accessible section markets, and accordant stableness could gradually alteration that," Brill said.
Pinebridge's Slim is besides optimistic astir SGD's aboriginal astatine a clip erstwhile the entreaty of accepted harmless havens has taken a hit: "The satellite is progressively looking for harmless havens, and I would expect the SGD to beryllium apical of that database ... portion it mightiness not go what the USD and JPY traditionally were, it volition beryllium progressively seen arsenic the CHF of Asia."
Jen-Ai Chua, probe expert for Asia astatine Julius Baer, sounded much optimistic, saying she does not regularisation retired the anticipation that the SGD could germinate from being an Asian harmless haven to becoming a planetary one, but it could instrumentality time.
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