One of the things that went relatively unnoticed last week was the revaluation of the Singapore dollar. But as a global or offshore investor, you should certainly be concerned about this. It has significant implications for both the US dollar, the euro and the global economy, as well as practical implications for those of you who are interested in offshore banking in Singapore. More on that below.

Note that here we are not talking about devaluation – that’s what’s going on with the dollar, euro and sterling. We are talking about an upward revaluation, because the markets demand it. At the risk of oversimplifying, I’ve often said that a country’s currency is rather like shares in its overall economy. Singapore is going up, while the ‘developed’ world is in a dreadful downward spiral, leading to ever more desperate measures such as currency controls.

By the way, to sidetrack for a moment, a few people have sent me for comment pieces by other writers disagreeing with my recent articles interpreting the HIRE Act’s provisions as capital or currency controls – including some opinions by highly respected analysts. It seems to me these analysts don’t get my point: Yes I know these don’t look like currency controls! They are certainly not typical old-fashioned exchange controls. The Obama administration may be stupid and arrogant enough to believe they can control foreign banks, but they are not so stupid as to try to introduce Venezuelan style currency controls. No my friends…. these are stealth or back door currency controls specifically hidden under other justifications.

A dictionary definition of capital is: wealth in the form of money or property owned by a person or business and human resources of economic value. ‘Control’ I don’t think needs much definition. In my book, anything that seeks to control your free and unrestricted use of your capital, is a capital control. Doesn’t matter an iota if it doubles as a measure to increase tax compliance or catch criminals. To give you another example, AML (anti money laundering) laws are also a form of capital control. The HIRE Act’s provisions in my opinion place major obstacles in the way of free movement of capital. Hence, they are, logically, capital controls. My full analysis is in QWR 54. Ignorance and denial is bliss. ‘Nuff said.

Back to Singapore… Consider the context. There’s been a lot of political haggling about the status of the Chinese Yuan. Singapore is Asia’s major money hub. Serious commentators are suggesting that Singapore allowing its currency to float upwards is a precursor to China doing the same thing. Indeed, Singapore’s Prime Minster Lee Hsien Loong himself has suggested that is what should happen next.

Many commentators have been focused on the Yuan as a purely geopolitical issue, as if the Chinese had full control over the matter… and assuming that it’s in China’s interests to keep the Yuan artificially low in order to export its products cheaply. They forget that China is also a huge importer of resources and raw materials, that are typically paid for in US dollars. After a plunge in the value of commodities, many are racing up again.

The fact is the Chinese no more control the global economy than the Americans do. They can try hard to manipulate currency values in the marketplace, but doing so is a losing battle, besides being very costly.

The upward revaluation of the Singapore dollar, therefore, could well be the beginning of a trend involving other Asian currencies… and another nail in the coffin of the US dollar. Oil and coal producers, for example, will only be too delighted to set their prices based on Asian demand, accumulating those newly strengthened currencies in the process.

This can only serve to strengthen Singapore as a regional international banking centre. We’ve seen a huge upsurge in interest from our readers for offshore bank accounts in Singapore of late. Singapore banks have traditionally targeted the Asian and Australian markets, but increasingly they are looking to attract deposits from Europe and North American clients. The attraction is plain: a stable, English speaking economy with strong banks and an international outlook.

Less obvious, perhaps, but an equally good reason to invest in Singapore is the level of access to Chinese banks. As a foreigner  you cannot open accounts directly in China – and you probably wouldn’t want to. But Singapore offers a lot of the Chinese upside, without the control-freak-government downside.

One of the reasons North American and European clients have not done more banking business in Singapore in the past is simply the distance, and the fact that Singapore banks have traditionally insisted on a face-to-face meeting with clients.

This is changing. As the best offshore banks are taking multi-jurisdictional approaches, it is more likely that your banker can be sitting in an office in your time zone, not too far away for a visit, while managing your account on the other side of the world. We are seeing more and more banks deliberately adopting this diversification strategy. Such banks also have contingency plans in place to shift your account to a different jurisdiction, within the same bank, at very short notice, if a particular jurisdiction should become unfavorable for any reason. This is the ultimate protection for your assets against all forms of currency controls – stealth or otherwise.

I’ll be writing more about this, and Singapore, in an upcoming issue of the Q Wealth Report, as well as summaries in Q Bytes. If you are not yet on the Q Bytes list, be sure to sign up here. It’s free, without obligation, and we respect your privacy.

by Peter Macfarlane

China’s banking system has twenty-five times the reserves of the US Federal Reserve. The USA’s power to dictate international monetary policy is lost as the rest of the world views the US dollar as a liability. People ask me every day about the “dollar collapse” – why do I keep predicting it, and why has it not happened yet? The answer is to be found in China.

For those of you who have already read How to Prosper from the Coming Shift in Power, module 5 in our free five part Secrets of the Super Rich course, I thought the following guest article by Keith Fitz-Gerald of Money Morning would be of interest. Keith is an investment analyst who lives part of the year in Asia. Here’s what he has to say…

Most Americans will view China’s effort to dethrone the U.S. dollar as the world’s main reserve currency as one of the biggest economic threats that this country will have to face.

But the reality is that this tectonic shift in global finance – and the economic shockwaves that will result – could provide investors with some of the greatest profit plays they’ll ever see in their lifetimes.

No matter which camp you’re in, the China-spawned changes are headed our way.

In 1990, the U.S. banking system was 2.3 to 2.7 times the size of its counterpart in China. Today, however, the situation has been reversed, and there is much more of an imbalance. In fact, China’s banking system has 25 times the reserves of the U.S. Federal Reserve.

At some point, the United States will no longer be able to dictate international monetary policy. Unfortunately, as our monetary policy aptly demonstrates, Washington seems to be the only player involved in this game of high-stakes global finance to not understand just how this is destined to play out.

U.S. leaders continue to employ monetary policy as a weapon – despite the fact that most of the rest of the world views the U.S. dollar as a liability.
At the end of World War II, virtually the entire world functioned on dollars. By some accounts, 100% of the world’s money supply was the dollar. Today that figure has dropped all the way down to 19%, says Rochdale Securities LLC analyst Richard Bove, a noted expert on the U.S. banking system and Federal Reserve.

Now that the federal government has deployed a few trillion dollars more as bailout bucks, it’s clear that the greenback has lost its mojo and the U.S. government has lost its international monetary leverage.

Why is this worrisome? History tells us that the countries with the strongest economies tend to also have the strongest currencies. It may take awhile for the latter to catch up with the former, but the relationship is highly correlated relationship – suggesting that China’s on the rise economically, while its currency is advancing with the unstoppability of a diesel locomotive operating at full throttle.

So if the U.S. dollar gets derailed as the world’s chief reserve currency – as we’ve repeatedly predicted is destined to take place – the world’s next reserve currency is likely to be China’s yuan, known officially as the renminbi.

Washington says that won’t happen, since Beijing takes steps to keep the yuan from being fully tradable. That’s true enough. But Beijing also understands that the dollar is a liability – which is why China’s leaders are going to great lengths to establish the yuan as a viable currency all its own, while simultaneously minimizing the Red Dragon’s dollar-based exposure.
In the last six months, for example, China has signed at least $95 billion in swap agreements, under which it can trade directly with countries for payment in yuan. The countries that sign these deals are getting huge discounts from China in exchange for their participation – and for buying goods from China. And the deals enable China to do an end run around the entire dollar-based currency trading system.

When it comes to this long-term plan to boost the yuan’s importance, China is waging a campaign on multiple fronts. This past spring, for instance, China organized a meeting in Moscow – attended by representatives from Brazil, India and Russia – where the main goal was to supplant the U.S. dollar as the world’s main reserve currency, replacing it with a yuan-led market basket of currencies, one that is simply backed by China’s renminbi, or perhaps even one based on the International Monetary Fund’s so-called Special Drawing Right (SDR).

Created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system, the SDR was redefined in 1973 as a basket of currencies. Today, the SDR consists of the euro, Japanese yen, pound sterling, and U.S. dollar.

My guess is that this gathering in Moscow was merely the first of many such meetings that we’ll see take place around the world in the years to come. Expect the list of attendees to grow, as well.

Given all that we now know, the real question becomes: What happens if China succeeds and the yuan displaces the greenback as the world’s top transactional currency?

The list of potential implications is very long, and includes several scenarios that are almost apocalyptic. But most of the outcomes raise as many questions as they answer.

Let’s consider the Top Five:

1. Global Gloom Leads to U.S. Doom: The U.S. dollar goes into freefall for the simple reason that if no country has to hold dollars any longer, they won’t. Instead – thanks to the ragged state of the U.S. government’s finances – many countries will dump greenbacks fast as they can, which will only put additional pressure on an already-strained U.S. financial system, which in turn will further damage our economy.
2. Inflation Inflates: Inflation will strike here with a vengeance, as anything bought, sold or priced in dollars will instantly rise in price to offset this fall.
3. Repatriation Risk: With the dollar serving as the world’s de facto currency, U.S. companies bear very little exchange rate risk when the time comes to repatriate assets or make currency-related adjustments. That would change overnight and prices throughout the value chains would rise sharply to compensate.
4. Money Costs More: The cost of money itself would rise. If the dollar falls, not only will there be massive selling pressure against it, but the cost of borrowing it will rise dramatically as lenders raise rates to cope with the increased risk of dollar-based transactions.
5. Death By Debt: And finally, if there is another reserve currency, other countries will no longer have to buy our debt, and you can guess where that will leave us – especially given the fact that we’ve taken on trillions in new debt to help finance our way out of our current mess.

My best guess is that we won’t see any one of these things in isolation, but will instead experience a blending of several or all of them. To the extent that China continues to absorb our inflationary influences, buy our debt in measured doses and maintain its reserves, we’ll probably have a measured decline in the value of the dollar – but not the catastrophic fall many in the doom, gloom and boom crowd are predicting. At the same time, I also see the IMF change course in the next few years to reflect China’s increasingly substantial influence and monetary power.

On the individual investor level, this clearly provides a new set of influences that most investors have yet to grasp. Most will perceive what I have said as a threat, but I believe the correct way to view this is that there will be a whole new set of opportunities coming our way.

Some of those opportunities will be obvious – like the need to invest in currencies and commodities that are of interest to China. Others, like direct investments in China’s yuan, will require special insight, a good investment guide, or a leap of faith.

Further reading: If you’ve not yet read Q Wealth’s five part course on offshore banking, asset protection and international wealth creation, check it out now. It’s free. If you are already a member of Q Wealth then you will have access to a wealth of material and information on how you can take full advantage of opportunities presented by the global crisis.

The bottom line – and the most important thing to remember – is this: No matter how this plays out, there will always be an upside for investors who are willing to seek it out.