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This is a quoted response by David Caploe to my previous posting, “SIngapore’s Economic Strength – Blessing or Bane?“

A very interesting article by my friend and colleague Conrad Alvin Lim. In this blog piece, which he titles “Singapore’s Economic Strength – Blessing or Bane ???”, he lays out a hypothetical scenario in which — for a variety of reasons discussed briefly below –

the strength of the Singapore economy leads to the Sing dollar, known locally as SGD, supplanting the US dollar — USD — as the dominant TRADING currency of the ever-growing, resource-rich South East Asian economy …

Now, as I have pointed out in several published articles and blog pieces, there are potentially serious risks for any country whose domestic currency becomes a trading and, inevitably, reserve, currency –

because companies will want to make sure they have a secure supply of any currency needed for trading –

the most significant of which, as Conrad points out, is massive inflation during the “bubble” phase, due largely to increased money supply leading to increasing prices, above all, in land-poor Singapore, in housing and commercial property,

and then, when the bubble bursts, as has been the case in Japan since the collapse of the Tokyo real estate market in 1989, and the US since the fall in the overall housing market since 2007 and 08, a basically “no-growth” economic pattern,

as banks, and other corporate “zombies” who are able to, resist any possible government pressure to actually record their “non-performing” assets,

although there was very little such pressure in Japan, which has so far been the case in the US as well under both Bush and Obama,

neither of whom has shown much inclination to do what Sweden successfully did in the early 90s when ITS banking sector became over-extended,

namely, force the banks to declare openly their non-performing loans, which short term resulted in some of them going under,

but whose long-term result has been a Swedish economy NOT dragged down by the blatantly fraudulent profile of its financial sector, unlike the US and Japan …

In this context, finally, the key factor Conrad points to in the current strength of the SGean economy and, consequently, currency is confidence –

the feeling among outsiders that the political leadership running the local economy knows what it’s doing,

which is what makes the currency a “safe haven” for an EXTENDED period of time, and not just quick speculation on foreign exchange markets …

This is important, because it points, once again, to the inextricable interconnection between economic and political factors …

If the SGD were ever to become the regional trading currency of SE Asia, the fundamental reason WOULD be the confidence of others in the region that the people running Singapore indeed know what they’re doing …

a confidence that, sadly, the US government “leadership” –

chronically since Reagan, acutely since the disastrous Cheney / Bush regime, and not, tragically, “changed” by Obama –

appears to be far along the road to having forfeited in the eyes of most of the world.

Several comments were posted in Facebook with regard to this topic. On top of that, check out today’s back page of the Money page in the Straits Times – “Singapore leaps to 3rd spot among competitive countries.“ You can also read about it in the China Daily or get all the thorough low-downs at NewsFeed Researcher and FinanceAsia.com.

Just more evidence of the strength of our economy. One notable observation was that while other Nations slid down the order, Singapore was one of the few that actually moved UP “by increasing its overall competitiveness score“. Singapore maintained its #1 rank for “ease of starting a business and the efficiency and low corruption levels of the Government. It ranked Singapore as having the world’s most efficient goods market, as well as very competitive tax rates and low trade barriers. Singapore’s infrastructure was also considered ‘world class’ and ranked fourth worldwide“.

The soundness of Singapore’s banking sector saw it move up the rankings from 13th to eighth; “The country’s institutions continue to be ranked as the best in the world. At a time when confidence in governments in many countries has diminished, they are assessed even more strongly than in past years.“

Now maybe we can reconsider any doubts that our economic standing is where we are safest and strongest. There can be little doubt as to where investors would rather trade and do business. There is also no doubt about the continued strength of our financial system and currency.

And finally, there must be no doubt that a surge of trade and investments that suddenly flood into our shores must be contained and managed properly.

So what of our currency becoming a preferred Regional Reserve Currency? I doubt very much that we won’t see inflation in the near future if this slowly but almost surely manifests.

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