The Singapore dollar is symbolised by S$ and has a currency code of SGD. There is currently R$34.4 billion in circulation. A volume of approximately US$33 billion is traded daily on the foreign exchange market, including spot and futures trade. The currency is regulated by the Monetary Authority of Singapore, and it has banknotes of S$2, S$5, S$10, S$50, S$100, S$500 and S$1000. The banknotes feature images of Yusof bin Ishak, the first president of the country, on one side and illustrations of civic virtues on the other.
The History Of The Singapore Dollar: A Link To The Far East
As early as the 3rd century, the region of what is now the island city-state of Singapore was known to Chinese and Southeast Asian mariners as Pu-luo-chung, or the "isle at land's end." It was reportedly inhabited as early as the 13th century, when it became known as Temasek, or "Sea Town."
In the 14th century, Prince San Nila Utama from Palembang, Srivijaya visited the areas on a hunting trip and came upon what he believed to be a lion. In honor of the moment, he founded a city at the locale, which he named Singapura or "The Lion City," from the Sanskrit words "Sinha" and "Pura." Located at the tip of the Malay Peninsula halfway on a route between India and China, the area was a strategic seaport and was frequently visited by travelers from as far away as China, the Middle East, and Portugal. Imported Chinese copper currency was commonly used in the region.
Singapore gained status as an international port of call in 1819, when Sir Stamford Raffles, colonial Lieutenant-Governor of Bencoolen, landed on the island at the orders of the British government to establish an outpost in the region. Raffles signed treaties with local authorities to set up a trading station at the location.
Within five years, Singapore became the principal British trading outpost in the region. The British government negotiated a permanent settlement in the territory with local authorities in exchange for cash payments. At the time of Singapore's founding, the Spanish dollar was in widespread use for trade between East Asia and Europe. From 1845 onward, Singapore used the straits dollar, a currency launched by the British government for the colonies of the Straits Settlements, which along with Singapore included Penang, Malacca and Dinding.
Trade in the region increased in 1860s with the the opening of the Suez canal in Egypt, and the establishment of the rubber industry in Southeast Asia. With growing prosperity, the population of the island increased, fueled mainly by migration of Chinese, Malays, Indians and Europeans. After suffering intense bombings from the Japanese in WWII, the country came under the control of Japan for three-and-a-half years. British rule of the region was restored after the war.
But in the following 20 years, the country was torn between pressures from communist and Malay nationalist movements. In 1959, the country voted for a local administration and in 1962, voters approved a proposal to become a part of the Malaysian federation. Singapore's adherence to the federation lasted only a short time, and by 1965 it declared independence. It joined the British commonwealth in the same year, and in 1967 it formed a Board of Commissioners of Currency to launch its own currency, the Singapore dollar.
As part of the Commonwealth, Singapore was associated with the Sterling Area countries, which followed coordinated monetary and currency policies. Upon its launch, the government pegged the Singapore dollar to the British pound at a rate of S8.60 per pound. But when the U.S. went off the gold standard in the 1970s, Britain floated the pound, and Singapore for a time pegged its currency to the U.S. dollar.
However, a heavy inflow of dollars into the country led to inflation pressure, and with this, the country adopted a "managed float" by 1973. Two years later, local authorities began pegging the Singapore dollar to an undisclosed basket of trade-weighted currencies. This policy involved periodic interventions in the local market by the country's monetary authority to maintain the currency within a target band. With Britain's lifting of exchange controls in 1978 and the end of the Sterling area, Singapore's currency policies were also fully liberalised.
From its free float of the currency, the country's dollar saw a gradual appreciation amid a favourable reaction of investors to Singapore's liberal foreign exchange policies. Its monetary authority found that as a small country, it was highly dependent on imports and susceptible to "cost-push" inflation. But as monetary policy had little effective influence on interest rates in the country's open economy, the government in 1981 opted to adopt an exchange rate targeting policy.
To manage the system, the government reduces local banking sector liquidity by depositing surplus funding at the central bank. To offset a consequent pressure for local currency appreciation, it buys U.S. dollars to accumulate reserves. The Monetary Authority of Singapore (MAS) typically aims to maintain a stronger local currency to keep prices in the country's economy low. With use of the policy, the country has managed to maintain relative price stability, even through periods of external shocks such as oil price crises.
Since 1981, the inflation rate in the country has averaged around 1.9% annually. While the preference for a stronger local currency can affect export sales, the high import content of goods manufactured locally has tended to offset negative impacts on local industry.
Monetary policy in Singapore is determined by the MAS. Policy is set by the bank's Monetary and Domestic Markets Management Department, which meets at two-week intervals. The department is responsible for managing the exchange rate through intervention in foreign exchange markets and adjusting banking system liquidity through money market operations and liquidity facilities. The bank issues statements on monetary policy twice a year.
Economy Of Singapore
Singapore is the 40th largest global economy ranked according to its gross domestic product. The country is recognised as a diversified economy with strong business, transportation and financial sectors that boasts stable prices, low unemployment, low corruption and high GDP per capita. Major industries include electronics, chemicals, financial services, oil drilling equipment, petroleum refining, rubber processing and rubber products, processed food and beverages, ship repair, offshore platform construction, life sciences, and port services. It is a strong producer of exports such as consumer electronics, information technology products, medical and optical devices, and pharmaceuticals.
Singapore is a member of the 12-nation Trans-Pacific Partnership free-trade negotiations, the Regional Comprehensive Economic Partnership negotiations with the nine other ASEAN members plus Australia, China, India, Japan, South Korea and New Zealand. Singapore's top trade partners are Hong Kong, China, Indonesia, the U.S., Malaysia and South Korea.
Foreign exchange and financial trading in Singapore are regulated by the MAS and the Singapore Foreign Exchange Market Committee. The latter is a panel made up of government authorities and representatives of private banks.
Major Singapore Dollar Currency Pairs
The Singapore dollar is commonly traded with all major world currencies, including USD, AUD and EUR, in addition to regional currencies such as BND, BDT and PKR. It is the 14th most commonly traded currency globally, accounting for about 1% of global volume.
Singapore Dollar Bills And Coins
The Singapore dollar has been issued as coins, paper money, and plastic polymer money. Singapore's currency is printed under the authority the country's mint. Some of the common nicknames for the Singapore dollar include the "sing" and the "s'pore dollar." Coins issued by the MAS include 5 cents, 10 cents, 20 cents, 50 cents and 1 Singapore dollar.
The Singapore Dollar Around The World
Because of Singapore's consistent efforts to maintain currency stability and combat inflation, the currency has come to be perceived by some traders as a safe haven currency and a proxy for currencies in the region of Southeast Asia. Additionally, since 1967 Singapore has maintained a currency interchangeability agreement with Brunei, meaning their currencies can be used in each of the respective countries.
Where Is The Singapore Dollar Today?
Singapore's currency weakened in mid-2015 under influence from China's move to allow its own currency to depreciate. Singapore's monetary authority, meanwhile, has recently sought to maintain a weaker currency amid a tame inflation outlook and an effort to stimulate the local economy.
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Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…