Tuesday, May 24, 2011


For years now, US dollar has lived a decorated life. It has been the globe’s reserve currency and nearly the whole world has had tremendous faith in the value of the US dollar. It has been considered a powerful currency to possess and its demand has always been very high. But the latest financial crisis has struck the dollar a devastating blow and has sent it on a downward spiral. The US debt scenario doesn’t help the cause either. The government has to borrow about half of what it spends. And printing more money is definitely not the solution even if policy makers manage to find fancy names like “Quantitative Easing”. As a result, over the last 4 years, dollar has been slowly but steadily depreciating against many currencies and hence faces the predicament of losing its cult status.

You may ask: “How does that matter to me?” Well, if you are earning in dollars or any of the other depreciating currencies, then it does! As dollar depreciates your purchasing power becomes lesser and lesser and so does the value of your savings. What can you do? One solution is you can identify stronger currencies and starting investing in them.

Now this leads us to the interesting concept of anti-dollar. These are currencies that are stronger and are going up in value while the dollar depreciates. For long, gold has been considered an anti-dollar as it has a value trajectory exactly opposite to the dollar. But gold is a low risk and more importantly low return investment. It is just for the safety lockers and fancy weddings.

Naturally you will instantly think about the world’s second largest economy. China! The Chinese might not even know that the world is coming out of a recession. Such is the growth of this country. But sadly this growth doesn’t show up in its currency. The Chinese have defied laws of monetary physics and have smartly managed to peg their currency to the dollar and have managed to keep American imports of Chinese goods relatively cheap. Alas, this is bad news to you as an investor because you have just lost the biggest potential anti-dollar. The Swiss Franc comes to my mind next. It has been a steady and safe currency for years. No wonder Swiss banks are so famous (notoriously!) But I feel that it has lived its upside potential and hence can be a safe investment but not a highly profitable one.

That brings me to the Singaporean dollar. This is a currency that has steadily and stealthily appreciated against the dollar significantly over the last 5 years and is going strong. If you don’t believe me take a look at the chart below which shows SD’s appreciation against USD over time! 1 Singapore dollar has appreciated from $0.59 in 2004 to $0.81 in 2010.

Well, how is this possible? One word: Governance! Singapore has an open business environment, is relatively corruption free and has one of the highest per capita GDPs in the world. It has a highly developed state capitalist mixed economy (famously known as “Singapore Model”) that combines economic planning with a free market to position Singapore as the fastest growing economy in the world. The Gross Domestic Product (GDP) in Singapore grew by 22.5% in the first quarter of 2011 over the previous quarter in stark contrast to America’s 2.3%. It easily surpassed China’s impressive GDP growth of 9.7% too. From 2007 until 2010, Singapore's average quarterly GDP Growth was 6.09% reaching an historical high of 44.50% in March of 2010.

With its challenges as one the smallest sovereigns in terms of the area and lack of natural resources, Singapore relies on something called “Entrepot” trade: purchase raw goods and refine them for re-export (wafer fabrication and oil refining). Having the busiest port in the world and a skilled workforce form the icing on the cake! And who can forget that Singapore is becoming the Financial hub of the world. The business supportive environment and political stability has attracted many multi-national banking and investment firms and almost all of these have their Asian headquarters in Singapore.

Singapore is also a country that lives within its means with the Government promoting high levels of savings and investment. If the US is characterized by borrowing and spending, then Singapore with earning and saving is its polar opposite. A wonderful measure to consider is the current account balance. It is the difference between the country’s savings and its investment. Singapore has a current account surplus of $26 billion while US has a deficit of $420 billion. Now you know why the US debt crisis is not a far-fetched thought! Singapore on the contrary has very low debt, high government revenues and its foreign exchange reserves work out to approximately $40,000 for every person which is a pretty good piggy bank for a rainy day.

But beyond all this, Singapore’s biggest advantage is that it sits in the middle of the busiest shipping lane in the world: Asia which has many many years of rapid economic growth ahead of it. All this means that the Singapore dollar would continue to gain value against the US dollar and hence promises to be a wonderful currency to invest in. And who knows, it might soon take its place as the elusive “Anti-Dollar”!

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