Workers counted Singapore Dollar notes in the financial hub at Raffles Place on October 6, 2022.
Amidst market uncertainty, investors seem to gravitate towards safe assets like gold, Japanese yen, US dollars, and Swiss francs. These are generally viewed as reliable during tumultuous market conditions.
Even though the US dollar is still favored globally, it has experienced a decline, with the Dollar Index dropping over 9% this year. Concerns around trade have left the outlook for the Japanese yen somewhat unclear. In light of this, some analysts are pondering the potential of the Singapore Dollar as an alternative currency.
According to Christopher Wong, an FX strategist at OCBC, the Singapore Dollar (SGD) appears to serve as a “quasi-safe” currency in Asia and various emerging markets, though it doesn’t quite hold the same prestigious status as traditional safe havens like the US dollar, Japanese yen, or Swiss franc. During financial stress mainly affecting Asia, the SGD often shows defensive traits, according to Wong.
Recent reports indicate that the SGD has appreciated by around 6% against the dollar yearly. There’s speculation from Jeffries that it could reach parity with the dollar in the next five years.
Omar Slim, co-head of Asian bonds at Pinebridge Investments, acknowledges the SGD as a safe haven, but he suggests it might not be the next go-to currency in that space. He attributes this to solid policy decisions and a resilient economic foundation in Singapore.
Felix Brill, VP Bank’s CIO, echoes this sentiment, highlighting the SGD’s characteristics of a strong safe haven, such as macroeconomic stability and low political risk, bolstered by a large current account surplus.
Interestingly, Singapore adopts a different approach to monetary policy compared to other nations; it doesn’t manipulate interest rates directly. Instead, it adjusts the SGD’s strength against a basket of key trading partners within a predetermined policy band, which allows for flexibility without fixed exchange rates.
Jeff Ng, leading Asian Macro Strategy at Mitsui Banking Corporation, points out that the managed policy band around the SGD is roughly 4%, which helps keep volatility in check and lowers risk in the short term.
Barriers to Becoming a Global Safe Haven
Experts believe that while the SGD has potential, it faces limitations in becoming a globally recognized safe haven currency. One major barrier is the size of its market. According to data from the International Village Banks in 2022, the USD comprises 88% of the foreign exchange market, while the yen and Swiss franc account for 17% and 5% respectively. The SGD only represents about 2%. The next survey from the BIS is expected in September 2025.
Brill also mentions that Singapore’s smaller economy results in less volume of trades in the SGD compared to the yen or franc, which impacts its liquidity and market depth – attributes sought after by investors in genuine safe havens.
The monetary policy itself, while stabilizing the SGD, actually restricts its capacity for broader trading and speculation, limiting its appeal to investors seeking substantial safe harbor options.
Adding to this, Singapore’s economy is heavily export-dependent, with World Bank data suggesting that exports could account for 178.8% of its GDP in 2024.
Trinh Nguyen from Natixis Corporate & Investment Banking points out that local authorities may not favor too much appreciation of the SGD, as that could make it less competitive. “If too many assets are purchased in SGD, it could become unfavorable for Singapore’s competitiveness,” Nguyen notes.
Some experts, like Janzia, Global Chief Investment Director at Bank of Singapore, argue that while the SGD can help mitigate currency risks, it also has the potential to serve as a valuable diversification tool, possibly emerging as a strong third option in currency debates.
There is a consensus among analysts that the Singapore Dollar retains the potential to earn recognition akin to the Swiss franc, if not the yen or dollar.
Brill adds that the status of a safe haven is built over decades of responding to crises, and while the SGD has performed well during financial stresses in Asia, it hasn’t yet become the first option globally. “With continued international use and a market that becomes more accessible, that could evolve,” Brill believes.
Meanwhile, Slim remains optimistic about the SGD’s prospects should traditional safe havens falter. Jen-Ai Chua, an Asian research analyst at Julius Baer, expresses an even brighter outlook, suggesting that over time, the SGD could transition from a regional safe haven to a globally recognized one—but there’s no denying it may take some time.
