Singapore Dollar: Is a New Safe Haven Emerging?

In times of economic uncertainty, investors traditionally turn to safe-haven assets – gold, U.S. Treasury bonds, and currencies like the Japanese yen, U.S. dollar, and Swiss franc. These assets are perceived to hold their value or even appreciate during periods of market turmoil.

While the U.S. dollar remains the world’s preferred reserve currency, it has been weakening. The dollar index is down over 9% year-to-date. The outlook for the Japanese yen, meanwhile, is clouded by trade concerns. Against this backdrop, analysts believe a new alternative may be forming: the Singapore dollar.

The Singapore Dollar as a 'Quasi Safe Haven'

OCBC foreign exchange strategist Christopher Wong suggests the Singapore dollar already acts as a “quasi safe haven” currency, particularly within Asia and emerging markets.

“While it doesn’t have the same global standing as traditional safe havens like the U.S. dollar, Japanese yen or Swiss franc, the Singapore dollar tends to exhibit defensive characteristics during periods of financial stress – especially those centered in Asia,” Wong explains.

The Singapore dollar has been strengthening against the U.S. dollar this year, rising about 6% year-to-date. Jefferies reportedly predicts the currency could reach parity with the dollar in the next five years.

Singapore's Strong Fundamentals

Omar Slim, co-head of Asia fixed income at PineBridge Investments, says, “The Singapore dollar is definitely one of the world’s safe havens. What makes it that is Singapore’s strong institutional framework, solid and resilient economic fundamentals, and strong policymaking, especially on the fiscal prudence side.”

VP Bank chief investment officer Felix Brill agrees that the Singapore dollar has many characteristics of a modern safe haven, including macroeconomic stability, strong institutions, a large current account surplus, and low political risk.

Brill notes that Singapore's monetary policy framework provides “exceptional stability” for the currency, which is what safe-haven money seeks.

The Unique Monetary Policy

Unlike most countries, Singapore does not use interest rates to manage its currency. Instead, it regulates by allowing the Singapore dollar to strengthen or weaken against a basket of major trading partners’ currencies within a policy band. The exact exchange rate is not fixed, and the Singapore dollar can fluctuate within the set policy band, the precise level of which is not publicly disclosed.

Jeff Ng, Asia macro strategist at Sumitomo Mitsui Banking Corporation (SMBC), estimates the width of the policy band to be 4% and says this management of the Singapore dollar means its volatility is limited, which reduces risk in the short term and provides more certainty.

Challenges for the Singapore Dollar

While the Singapore dollar is on the right track, experts say there are some obstacles that remain in its path to becoming the next widely accepted global safe-haven currency.

First is the size of the Singapore dollar market. Bank for International Settlements (BIS) 2022 data shows 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. By comparison, the Singapore dollar accounts for just 2%. The BIS survey is conducted every three years, with the next cycle due in September 2025.

“Even though Singapore is highly respected, it has a small economy, and the Singapore dollar’s trading volume or bond market depth is not the same as the Japanese yen or Swiss franc,” says VP Bank’s Brill.

Additionally, Singapore’s existing monetary policy, which brings exceptional stability for the Singapore dollar, is also what constrains it.

Brill explains that because the currency is “managed,” this limits market speculation and large position build-ups, thereby limiting its liquidity and depth. These are key attributes investors look for in a true global safe haven. “So, this framework helps build credibility, but it hinders size,” Brill says.

Other factors include Singapore’s reliance on an export-based economy. World Bank data shows 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 Singapore dollar to appreciate too much.

“If investors buy too many Singapore dollar assets, that will push the Singapore dollar higher,” Nguyen notes, adding, “If the Singapore dollar becomes uncompetitive … MAS will not tolerate that because it thinks that’s detrimental to Singapore’s competitiveness.”

Potential for Diversification

Still, the Singapore dollar can be used to reduce currency risk. Jean Chia, global chief investment officer at Bank of Singapore, says the Singapore dollar “can play a very important role in diversification … so it could be the third currency in many of your currency diversification discussions.”

Experts agree that the Singapore currency has the potential to gradually gain a similar status to the Swiss franc, even if not at the level of the Japanese yen or the U.S. dollar.

VP Bank’s Brill notes that safe-haven status is built over decades of crisis response behavior. While the Singapore dollar has performed well during Asian economic downturns, it has not yet become a preferred safe haven during global economic slowdowns. “Over time, broader international usage, more convenient local markets, and continued stability might gradually change that,” he says.

Slim is also optimistic about the Singapore dollar’s future as the appeal of traditional safe-haven currencies wanes: “The world is increasingly looking for safe havens, and I would expect the Singapore dollar to be at the top of the list … While it may not become what the U.S. dollar and Japanese yen traditionally are, it will increasingly be seen as the ‘Swiss franc of Asia.’”

Jen-Ai Chua, Asia research analyst at Julius Baer, sounds even more bullish, saying she doesn’t rule out the possibility of the Singapore dollar evolving from an Asian safe haven to a global one, but that it may take time.