Singapore is a highly developed financial hub on this side of the globe, and it is one of the most fast-paced countries in Southeast Asia. Its open policies on international trade and business, as well as its advanced technology, make it an ideal place for entrepreneurs, investors, and traders to gather. The fact that English is one of the country’s official languages also make it a welcoming place for expats and foreigners.
Singapore has its own currency, the Singaporean dollar (SGD), issued by the country’s central bank.The Singaporean dollar is a popular currency in forex trading, with over millions of dollars being traded in the market every day. In this article, we will explore everything you need to know about SGD, from its history, advantages, and some factors that drive its appreciation in global currency markets.
A history of the Singaporean dollar
Singapore first issued their national currency on 7 April 1967 through their newly established Monetary Council of Singapore. Nevertheless, the SGD was a common currency with the Malaysian ringgit and Brunei dollar, due to the countries’ proximity. The government fixed the currency to the Pound sterling, with an exchange rate of 60 SGD for 7 GBP, until the early 70s.
As Singapore developed, there was a growing need for more complex banking and monetary policies and regulations. From the early 70s to the mid 80s, the government fixed the dollar’s exchange rate to a basket of currencies. From 1985, it adopted a market system based on the currency exchange regime. This gave the dollar the ability to ‘fluctuate’ in the currency markets and certain Singaporean exchanges, while the MAS retained a certain amount of control over its valuation.
In 2002, Singapore dissolved the Monetary Council of Singapore to establish Monetary Authority of Singapore (MAS). Today, the MAS is the country’s central bank and financial services regulator, and brokers and banks gain their license from the institution to operate legally within Singaporean borders.
Today, there is a total currency circulation of over 50 billion Singaporean dollars, issued in bank notes and coins. As of July 2022, there is also over US$288.2 billion in Singapore’s foreign reserves.
The Singaporean dollar in the forex market
In forex trading, the Singaporean dollar is not a major currency. Nevertheless, it is extremely popular, evidenced by the fact that it is the 12th most traded currency in the world.
Traders in Singapore are also active participants of the forex market alongside major players in Asia. As of early 2022, Singapore and fellow financial powerhouse Hong Kong each contribute 7.6% to the global forex turnover. This is an impressive number, as both cities are tiny geographically.
Factors that drive the Singaporean dollar
If you are thinking about trading SGD, you must understand what factors drive the currency’s valuation in the forex market. Within the wider economy, they include, but are not limited to:
Inflation rate
Singapore’s inflation rate can change how the Singaporean dollar is valued. For example, in an environment of high inflation, the Singaporean dollar will depreciate. In contrast, in an environment of low inflation, the Singaporean dollar will appreciate. Singapore’s inflation has always been around 2-3%.
Government debt
Government debt, also known as national or public debt, is the balance that is owed by a country (or territory). The higher the government debt, the lower the number of foreign investors and foreign capital. Therefore, if Singaporean government debt increases, the Singaporean dollar will depreciate.
Interest rate
Generally, a country’s interest rate has ties to its inflation rate. The MAS sets the country’s interest rate, and this rate affects investors’ borrowing behaviour. When a country has high interest rates, fewer people will borrow money as it will become more expensive to do so. This will lead to the country’s currency strengthening.
Trade relationships
As a relatively small country with limited land, Singapore is dependent on its neighbours to supply natural resources and consumables, such as oil, natural gas, and food varieties. The trade relationships it forms and maintains with other countries is therefore crucial and can impact the overall health of the country’s economy and standard of living. When Singapore has positive trade terms with other countries, the dollar tends to grow and remain strong.
Why trade SGD?
If you are a resident or citizen of Singapore, the decision to trade the Singapore dollar may come naturally to you. However, if you do not reside in the country, are there any reasons to trade SGD? The answer is yes – and plenty.
Firstly, Singapore has an extremely stable economy as one of the world’s most open and business-friendly environments. It also abstains from any political entanglements and has good relationships with neighbouring countries, including Australia, Malaysia, China, Indonesia, and the Philippines.
Secondly, Singapore is a high-growth environment with advanced technology. It is a major player in many financial markets, and it has a brilliant future in fintech. This makes it an attractive place for traders to live and work, and the currency continues to grow as the national economy flourishes over the years.
Finally, the Singapore dollar is highly liquid. As mentioned, it is the 12th most traded currency in the world, and traders in the small country are highly active. There are also a lot of high net-worth individuals in Singapore who enjoy investing and trading, creating perpetual supply and demand of the currency, making it easy for traders to enter and exit markets at will.
The most popular currency pairs containing SGD
Even though the Singaporean dollar is not a major currency, it is still a very liquid one. Many traders participate in trading SGD because of the city’s involvement in global affairs and international finance. If you would like to try online currency trading, SGD is a good place to start. Below are some of the most popular currency pairs you may consider:
- USD/SGD
The US dollar is the world’s reserve currency and the most traded currency in the world. Naturally, many traders like to trade USD/SGD for its high liquidity and accessibility.
- SGD/AUD
With Singapore’s relative proximity to Australia, many Singaporeans like to live, travel, and work in the country. Australia also has great trade terms with Singapore, with the small country being its largest trade and investment partner in the ASEAN (Association of Southeast Asian Nations) region. This makes SGD/AUD a solid option when currency trading.
- SGD/HKD
Sometimes known as ‘twin cities’ and other times known as rivals, Singapore and Hong Kong are constantly one-upping each other as Asia’s top financial and investment hub. With strong trading activity in Hong Kong and advanced investment frameworks, the SGD/HKD pairing is another popular pairing due to its high liquidity and accessibility.
- SGD/GBP
As a former British colony, Singapore remains cordial with Great Britain and has strong business ties together. The Great Britain pound is also the 4th most traded currency in the world and one of the major currencies, alongside the US dollar. Just like USD/SGD, SGD/GBP is a popular currency pair for its high liquidity and accessibility.
The bottom line
The Singaporean dollar has a rich history, and as one of the most traded currencies in the world, offers a stable avenue for traders and investors to enter the forex market. If you are planning to get started trading currencies, SGD is an excellent place to start, offering you both relative stability and excitement of new opportunities. However, you should remember that forex trading contains risks, and there is no guarantee of profits. Therefore, trade sensibly and never risk more than you can afford to lose.
