Singapore Dollar: A New Contender in the Safe-Haven Market?

In periods of economic volatility and uncertainty, investors traditionally flock to what are known as "safe havens." These assets, which include gold, U.S. Treasury bonds, and currencies like the Japanese yen, U.S. dollar, and Swiss franc, are perceived as being able to maintain or increase their value during times of market turmoil.

US Dollar Facing Challenges

Despite its dominant position as the world's preferred reserve currency, the U.S. dollar has been showing notable weakness. The dollar index has fallen by more than 9% year-to-date. Meanwhile, the Japanese yen faces uncertainty due to ongoing trade concerns.

Singapore Dollar: A Rising Alternative

Against this backdrop, analysts suggest that a new alternative may be emerging: the Singapore dollar (SGD). Christopher Wong, a foreign exchange strategist at OCBC Bank, suggests the SGD has already been acting as a "quasi-safe haven" currency, particularly within Asia and emerging markets.

Safe-Haven Characteristics of the SGD

Wong explains that while the SGD does not have the same global status as traditional safe-haven currencies like the U.S. dollar, Japanese yen, or Swiss franc, it tends to exhibit defensive characteristics during periods of financial stress, especially those centered in Asia. The Singapore dollar has seen notable appreciation against the U.S. dollar this year, rising by approximately 6% year-to-date. Jefferies has even predicted that the currency could reach parity with the dollar within the next five years.

Why is the Singapore Dollar Considered a Safe Haven?

Omar Slim, co-head of Asia fixed income at PineBridge Investments, points to Singapore's strong institutional framework, solid and resilient economic foundation, and strong policy-making, particularly in fiscal prudence, as making it a safe haven. Felix Brill, chief investment officer at VP Bank, agrees that the SGD possesses many characteristics of a modern safe haven, including macroeconomic stability, strong institutions, a large current account surplus, and low political risk.

Singapore's Monetary Policy and Stability

Brill emphasizes that Singapore's monetary policy framework brings "extraordinary stability" to the currency, which is precisely what safe-haven money seeks. Unlike most countries, Singapore does not use interest rates to manage its currency. Instead, they adjust the exchange rate of the SGD against a basket of currencies of major trading partners within a policy band. The exact exchange rate is not fixed, and the SGD can fluctuate within the defined band, the precise level of which is not publicly disclosed. Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui Banking Corporation (SMBC), estimates the width of the policy band to be 4% and suggests that this management of the SGD means that volatility is limited, reducing risk and providing more certainty in the short term.

Challenges Facing the SGD's Ascent

While the Singapore dollar is on the right track, experts caution that some hurdles remain before it becomes a widely accepted global safe-haven currency.

Market Size

One such hurdle is the size of the SGD market. According to 2022 data from the Bank for International Settlements (BIS), the U.S. dollar accounts for 88% of the foreign exchange market, while the Japanese yen and Swiss franc account for 17% and 5%, respectively. In contrast, the Singapore dollar accounts for just 2%. The BIS survey is conducted every three years, with the next one due in September 2025.

Monetary Policy Limitations

Furthermore, Singapore's existing monetary policy, which brings stability to the currency, is also what constrains it. Brill explains that because the currency is "managed," this limits market speculation and large-scale position-taking, thereby limiting its liquidity and depth. These are key qualities that investors look for in a true global safe haven. "So, this framework helps with credibility but hinders size," he adds.

Reliance on Exports

Other factors include Singapore's reliance on an export-driven economy. According to World Bank data, exports accounted for 178.8% of the city-state's GDP in 2024. Therefore, according to Trinh Nguyen, senior economist at Natixis, the Monetary Authority of Singapore (MAS) may not want the SGD to appreciate too much.

Exchange Rate Management

"If investors buy too many SGD assets, that would push the SGD higher," Nguyen notes, adding that, "If the SGD becomes uncompetitive… the MAS won't tolerate that because it sees that as detrimental to Singapore's competitiveness."

SGD as a Diversification Tool

However, the SGD can still be used to mitigate currency risk. Jean Chia, global chief investment officer at Bank of Singapore, says the SGD "can play a very important role in diversification… so that might be the third currency in many of your currency diversification discussions."

Future of SGD as a Safe Haven

Experts agree that the Singapore currency has the potential to gradually attain a status similar to the Swiss franc, even if it falls short of the yen or dollar. Brill points out that safe-haven status is built over decades of crisis response behavior. While the SGD has performed well during Asian economic downturns, it has not yet become a preferred safe haven during global economic slowdowns. "Over time, wider international usage, more convenient local markets, and continued stability may gradually change that," he concludes. Slim is also optimistic about the SGD's future at a time when traditional safe-haven currencies are seeing their appeal diminish: "The world is increasingly looking for safe havens, and I expect the SGD to be top of mind… While it may not become what the dollar and yen have traditionally been, it will be increasingly seen as the 'Swiss franc of Asia.'" Jen-Ai Chua, Asia research analyst at Julius Baer, sounds even more optimistic, saying she wouldn't rule out the possibility of the SGD evolving from an Asian safe haven to a global one, but adds that this could take time.