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.