A very interesting article by my friend and colleague Conrad Alvin Lim, who runs the Stock Trading Seminar Training for Adam Khoo Learning Technologies,
which is the most prominent training company — both corporate and public at large — in Singapore, where training is a very big deal … 
…
In this blog piece, which he titles “Singapore’s Economic Strength – Blessing or Bane ???”, he lays out a hypothetical scenario in which — for a variety of reasons discussed briefly below –
the strength of the Singapore economy leads to the Sing dollar, known locally as SGD, supplanting the US dollar — USD — as the dominant TRADING currency of the ever-growing, resource-rich South East Asian economy …
Now, as I have pointed out in several published articles and blog pieces, there are potentially serious risks for any country whose domestic currency becomes a trading and, inevitably, reserve, currency –
because companies will want to make sure they have a secure supply of any currency needed for trading –
the most significant of which, as Conrad points out, is massive inflation during the “bubble” phase, due largely to increased money supply leading to increasing prices, above all, in land-poor Singapore, in housing and commercial property,
and then, when the bubble bursts, as has been the case in Japan since the collapse of the Tokyo real estate market in 1989, and the US since the fall in the overall housing market since 2007 and 08, a basically “no-growth” economic pattern,
as banks, and other corporate “zombies” who are able to, resist any possible government pressure to actually record their “non-performing” assets,
although there was very little such pressure in Japan, which has so far been the case in the US as well under both Bush and Obama,
neither of whom has shown much inclination to do what Sweden successfully did in the early 90s when ITS banking sector became over-extended,
namely, force the banks to declare openly their non-performing loans, which short term resulted in some of them going under,
but whose long-term result has been a Swedish economy NOT dragged down by the blatantly fraudulent profile of its financial sector, unlike the US and Japan … …
In this context, finally, the key factor Conrad points to in the current strength of the SGean economy and, consequently, currency is confidence –
the feeling among outsiders that the political leadership running the local economy knows what it’s doing,
which is what makes the currency a “safe haven” for an EXTENDED period of time, and not just quick speculation on foreign exchange markets …
This is important, because it points, once again, to the inextricable interconnection between economic and political factors …
If the SGD were ever to become the regional trading currency of SE Asia, the fundamental reason WOULD be the confidence of others in the region that the people running Singapore indeed know what they’re doing …
a confidence that, sadly, the US government “leadership” –
chronically since Reagan, acutely since the disastrous Cheney / Bush regime, and not, tragically, “changed” by Obama –
appears to be far along the road to having forfeited in the eyes of most of the world …
While everyone was looking towards China for regional strength, doubts prevailed about their regulation – or lack thereof – of their currency and commercial practices. These doubts put China on the back foot of ever becoming a regional financial powerhouse as faith and confidence in a country’s financial system are always first considerations for business and trade. Furthermore, China’s economic strength has come from their unrivalled ability to sell and become the region’s biggest seller.
For China to become a real regional financial and business center, it will have to restructure its infrastructure to buy as much as they sell. And therein lies the problem – faith and confidence in doing business with an economy that is unregulated or at best, poorly regulated. Why would any economy want to sell to a country whose currency is not regulated? …
Our [Singapore ] economy has proven itself time and again in every recession that the world has thrown at us while we have never created a recession on our own. Our currency has stayed stronger and more stable than any other regional currency at every recession …
Singapore’s financial system is a world class one and one that many other nations trust. In a sense, our modeling of the Swiss system has made Singapore the Switzerland of the east. Our country is run like a successful cash-rich business.
Yes we do cop some losses (including some highly questionable ones) but if you make a global comparison, our report card is rather outstanding.
The government’s quick response at the outset of this recession was, in hindsight, a visionary one. It also served to advertise to the world how well our reserves are doing.
I take back what I wrote in a post last year where I thought the government had made a knee jerk reaction by pulling on our reserves too soon.
Could it have been better managed with other means than our reserves?
We’ll never know but what we do know now is that it was a stroke of genius …
… more regional marketers move from transacting in USD and shift to SGD. On our own shores, international operators prefer the SGD for current deals over the USD. Those who continued to do business in USD late last year and early this year already understand the risk of making their deals in USD.
There is a great fear of the USD tanking to 1.34 against the SGD like it did in April and June last year. Should America do a double dip, this fear will drive more demand to the SGD as more people question the worth of the USD against it multi-trillion dollar debt. Questions will also rise about America’s ability to pay up what it owes without devaluing its currency …
Singapore’s businesses have reached out all over the region and have operational centers and branches in every country across East Asia. In almost all these countries, the locals would rather do business with a Singapore based firm because they value the strength and security of doing so. Our currency is also widely accepted in all East Asian countries.
Where did this strength and security come from?
Good government and good corporate governance.
It also came from the one resource that has made most Singaporeans wealthier than their regional neighbors – home ownership. On an island where land is scarce, property has become a limited resource which most locals have made money from.
More than 90% of working Singaporean families are home owners. Out of that amazing return, a fair percentage own more than one property and it is my belief that this multiple-property ownership amongst ordinary citizens (not in the property business) is amongst the highest in the world.
It’s at this point Conrad introduces the potential fly in the ointment of this — hypothetical — scenario … …
Will Singapore be able to monetize all the business deals and trades should the region continue this trend? Does Singapore have enough dollars to support this trade? Is it in Singapore’s interest to become a reserve currency in the absence of a strong USD?
I hope not.
Such a scenario will only drive up inflation. Sure it will be good for the property moguls, multi-property and home owners but you only have to look at Japan to know how ridiculous property prices can become.
In Singapore, it can become more ridiculous given the scarcity of land here. Governmental measures can only do so much as greed precedes governance as evidenced in the U.S. Again, look at what it did to the Japanese economy and currency to put it where it is today. …
What happens thereafter is that the rich really get much richer and poor will start to include those middle income earners who didn’t go north with the rich. Class diversification will become a factor.
I trust that our government will not allow Singapore to decline into such a state. Amongst the faithful and loyal citizens, we know it will never happen.
But there is exactly where we will be hit – in our confidence. Such a mindset, that it will never happen, is one of complacency and arrogance.
Our faith in our good government will be our undoing because history has recently proved that nothing is too big to fail. Even the financial heaven of Switzerland went through a hell of sorts and they’re still sorting it out now.
Failure of any kind always starts where safety is assumed. It seldom hits hard where you expect it to hit. Confidence in the Chinese market is seeing it capitulate now. Confidence in the American stock market hit it hard in the 30s, 2002 and today …
He concludes:
I’m no economist and I have no statistics at my disposal.
All I have is a feel of the street.
And the confidence on the streets of Singapore is so high while the rest of the world’s talk of recovery turns into talks of a double dip.
Will the strength of the Little Red Dot’s economy be enough to ride out the storm in a global tea cup?
I say yes — but there is where the problem will start.
An interesting hypothesis … we’ll see if it comes to fruition …
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