In the first year, the Singapore dollar soared by 6%! "Asian Swiss franc" strikes back at the global safe-haven assets squad

Notice that, during times of market turmoil, investors tend to turn to safe-haven assets such as gold, US Treasuries, and currencies like the yen, dollar, and Swiss franc. These assets are believed to be able to preserve or even increase in value during market fluctuations. While the US dollar remains the preferred global reserve currency, its performance continues to be weak - the US dollar index has fallen by over 9% this year. The outlook for the yen is shadowed by trade disputes. Against this backdrop, analysts point out that the Singapore dollar is quietly rising and could become an emerging safe-haven choice. Christopher Wong, FX strategist at Oversea-Chinese Banking Corporation (OCBC), stated that the Singapore dollar has played the role of a "near-safe haven" currency, especially in Asia and emerging markets. Wong said, "Despite not having the global status of traditional safe-haven currencies like the dollar, yen, or Swiss franc, the Singapore dollar often displays defensive characteristics during periods of financial stress, especially in Asia." The Singapore dollar has appreciated by about 6% against the US dollar this year, and investment bank Jefferies predicts it could reach parity with the US dollar within five years. Omar Slim, Co-Head of Asian Fixed Income at PineBridge Investments, noted that the Singapore dollar is indeed considered one of the global safe-haven currencies, but it may not necessarily become the "next" go-to safe haven choice. Its safe-haven attributes stem from Singapore's robust institutional framework, strong economic fundamentals, and prudent fiscal policies. Singapore's unique monetary policy framework provides the Singapore dollar with "exceptional stability." Unlike most countries, Singapore does not control exchange rates through interest rates but allows the SGD to float within an undisclosed policy band against a basket of major trading partner currencies. Experts also pointed out that the Singapore dollar's ascension to a global safe-haven currency still faces obstacles. Data from the Bank for International Settlements in 2022 shows that the US dollar holds an 88% share of the foreign exchange market, while the yen and Swiss franc account for 17% and 5% respectively, with the Singapore dollar only holding a 2% share. Although Singapore is highly regarded, its economy is relatively small, and the trading volume and market depth of the Singapore dollar are not as high as the yen or Swiss franc. Additionally, Singapore's Monetary Authority's exchange rate management mechanism suppresses market speculation while also limiting currency liquidity and market depth. In addition, with the country's high export-to-GDP ratio of 178.8% (World Bank data for 2024), the Monetary Authority of Singapore takes a cautious approach towards excessive currency appreciation. Trinh Nguyen, Senior Economist at Natixis, noted that "if the Singapore dollar appreciates significantly due to capital inflows, the MAS will intervene as it sees fit against any threats to competitiveness." However, Jean Chia, Global Chief Investment Officer at VP Bank, believes that the Singapore dollar can play a "significant role" in currency diversification. Experts generally agree that while the Singapore dollar may not yet rival the dollar or yen, it has the potential to gradually attain a similar status to the Swiss franc. As Bril noted, "A safe-haven status takes decades of crisis management actions to build. While the Singapore dollar has performed well in Asian crises, it is not the first choice during global recessions. With increased international usage, improved market access, and continued stability, this situation may gradually change." In the current environment where traditional safe-haven assets are losing appeal, Slim of Pinebridge also holds an optimistic view on the future of the Singapore dollar: "As the world increasingly seeks safe-haven assets, I expect the Singapore dollar to be at the top... Though it may not become the traditional choice like the dollar and yen, it will increasingly be seen as Asia's Swiss franc." Jen-Ai Chua, Asian Research Analyst at Credit Suisse, is even more optimistic, stating that she does not rule out the possibility of the Singapore dollar evolving from an Asian safe haven into a global safe haven, although this may take time.