SGD - Singapore Dollar

Overview of the Singapore Dollar

The Singapore Dollar is widely regarded as one of the strongest and most stable currencies in the region, with the symbol S$ and an ISO 4217 code of SGD. It is issued and regulated by the Monetary Authority of Singapore (MAS), which is responsible for the country's monetary policy, currency issuance, and financial stability. 

The Singapore Dollar is used not only in Singapore but also in nearby regions, where it enjoys a prominent position in trade and finance. Over the years, the Singapore Dollar has been known for its resilience, backed by Singapore's robust economy, low inflation, and strong fiscal policies. It is frequently traded against major currencies like the US Dollar (USD) and the Euro (EUR) on international markets.

History of the Singapore Dollar

The Singapore Dollar was introduced in 1967, following Singapore's separation from Malaysia, marking a new milestone in the country's monetary independence. The currency is managed by the Monetary Authority of Singapore (MAS). The Singapore Dollar is renowned for its stability and is widely used as a major currency in international financial transactions. It is also frequently updated with advanced security features to ensure safety and prevent counterfeiting. This currency not only serves as the medium of payment and transaction within Singapore but also reflects the nation's position as a global financial hub.

Currencies Used in Singapore

• From 1845 to 1939: The Straits dollar was used, which was later replaced by the Malayan dollar.

• In 1953: The Malaysian dollar and the British Borneo dollar were used, issued by the Malaysian and British Borneo Currency Commissioners.

Exchange Rate of the Singapore Dollar

The Singapore Dollar is a freely convertible currency and is allowed to float according to the supply and demand in the foreign exchange market. However, the Monetary Authority of Singapore (MAS) intervenes in regulating and monitoring the currency based on a trade-weighted basket of currencies. The related currencies are not publicly disclosed to protect the currency from speculative attacks or other abnormal pressures on its value.

Since the Asian financial crisis, many countries, such as the People's Republic of China, have adopted the managed float system used by Singapore. The Brunei Dollar is pegged to the Singapore Dollar at a 1:1 exchange rate, and although it is widely accepted as a familiar means of payment, it is not considered legal tender in Singapore and vice versa.

History of the Singapore Dollar Exchange Rate

The exchange rate of the Singapore Dollar has experienced many fluctuations over the years:

• 1967 - 1973: The Singapore Dollar had an exchange rate equal to the Malaysian ringgit, and the exchange rate with the Brunei Dollar was maintained.

• Before 1970: The value of the Singapore Dollar was pegged to the British Pound with an exchange rate of SG$60 = £7. The Singapore Dollar was later briefly linked to the US Dollar.

• 1973 - 1985: The SGD was pegged to a trade-weighted basket, which was fixed but not publicly disclosed.

Value of the Singapore Dollar

The Singapore Dollar (SGD) was initially pegged to the gold standard when it was linked to the US Dollar in the 1970s. It later shifted to a fixed trade-weighted basket peg, which was not disclosed, from 1973 to 1985.

The Singapore Dollar is considered a strong currency, playing an important role as a reserve currency due to its stability and Singapore's strict monetary policy. The country is regarded as a financial hub with a robust economy, making the Singapore Dollar a "safe haven" for investors. It also boasts large foreign exchange reserves, bolstering confidence and supporting monetary policy. The Singapore Dollar is among the strongest and most reliable currencies in the Asia-Pacific region.

Factors Influencing the Value of the Singapore Dollar

The value of the Singapore Dollar (SGD) is affected by several economic and policy factors, including:

• Global and Regional Economic Conditions: Singapore is an open economy that heavily relies on international trade. The economic conditions of major trading partners like the US, China, Japan, and the EU have a significant impact on SGD. When the global economy is performing well, demand for Singapore's exports increases, strengthening the SGD.

• Monetary Policy of the Monetary Authority of Singapore (MAS): Unlike many other countries, Singapore manages its currency's value by adjusting exchange rates rather than interest rates. MAS directly intervenes in the foreign exchange market to adjust SGD within a “policy band,” protecting the economy from excessive currency fluctuations. This helps maintain the stability of the SGD against other currencies.

• Inflation: The inflation rate is a major factor that influences the purchasing power and value of the SGD. When inflation is high, the purchasing power of the SGD decreases. MAS often adjusts the exchange rate to control inflation, supporting Singapore’s goal of stable economic growth.

• Global Interest Rates: Although Singapore does not use interest rates as a primary monetary tool, interest rates from major central banks (like the US Federal Reserve) indirectly affect capital flows into Singapore. When US interest rates rise, capital may flow out of Singapore, weakening the SGD. Conversely, low interest rates in developed countries may increase capital inflows, boosting the SGD’s value.

• Foreign Exchange Reserves and Gold: Strong foreign exchange reserves provide MAS with the tools to intervene in the forex market and stabilize the SGD. In the event of unusual market fluctuations, Singapore can use its reserves to adjust the value of the currency.

• Political Stability and Investment Environment: Singapore is considered one of the world’s financial hubs, offering a stable political environment and a transparent legal system. These factors make it an attractive destination for global investors, enhancing the value of the SGD during global instability.

• Volatility of Regional Currencies: The SGD is also affected by fluctuations in regional currencies such as the Japanese Yen (JPY), the Chinese Yuan (CNY), and the US Dollar (USD). Changes in the economies and exchange rates of these major currencies can influence trade demand, requiring MAS to adjust policies to maintain competitiveness for Singapore's goods and services.

The value of the Singapore Dollar is carefully managed to protect Singapore's economic interests, ensure stability, attract investment, and control inflation. These combined factors ultimately determine the value of the Singapore Dollar.