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The Singapore Dollar, Prices, and Gold

As currencies, including the Singapore Dollar, decline in purchasing power, gold and silver remain stores of value for investors.

Published: 21-11-2012 00:00

The Singapore Dollar, Prices, and Gold

Inflation for progress?

In the latter half of the 1970s, Singapore came into its own as an economic powerhouse, largely due to economic liberalization. Over the next four decades, Singapore’s economic successes could not be argued, and it remains one of the, if not the, freest economies in the world. We ask, however, how much of this has to do with inflation, that is, a constant lowering of purchasing power of a currency?

It is a common notion that a certain steady ‘rate of inflation’ is healthy for an economy, as it spurs people to spend, thus seeming to promote economic activity.

On the other hand, it would be advantageous for currencies to stay strong, in that this means that more goods and services can be bought by people for less. And what is not spent on consumption is saved for more investments, allowing for greater employment and productivity. Spending in itself could not be considered a virtue; spending is more a result of saving. Stable purchasing power, and not ‘steady inflation,’ is what is conducive to saving, as well as to sustainable investment and consumption. This is why gold is so appealing to investors, as we shall see below.

The Straits Dollar and its successors

The fall in purchasing power of the currency can be witnessed throughout Singapore’s modern history. During British rule, the Straits Dollar, used from 1845 to 1939, maintained its value to the same degree as the British Pound Sterling. In the early part of the 20th century, the United Kingdom, as well as the United States, began drifting from a gold standard. Even though in paper, a fixed rate per unit of weight was set (hence the term ‘pound’), banks had already begun growing their deposits and issuances beyond what they had in gold. This means that even Singapore’s Straits Dollar was subject to currency devaluation as implemented by the British, which still ruled over the city-state at this time. Indeed, depreciation has been a world phenomenon since the early 20th century.

Singapore later adopted the Malayan dollar, as well as the Malaya and British Borneo dollar, until finally becoming an independent state in 1965. Even when independent, the Singapore Dollar that first came about was pegged to the Pound, and later to the US Dollar, prior to the collapse of Bretton Woods in the early 1970s.

Bullion Star Chart
The price of gold, SGD, 2003 to the present

Prices keep rising

Even after these periods, when the Singapore Dollar was no longer officially pegged to any particular currency, it has not escaped a decline in its value over time. In the 1970s, the Singapore Dollar was just as sensitive to the price inflation and corresponding crises that occurred worldwide, hitting a 34% price index increase in 1974. Even with a decline in the rate of inflation in the 1980s and 1990s, the same devaluation was taking place, only slower.

To this day, even those currencies seen as strong, such as the Swiss Franc, the Chinese Renminbi, and the Singapore Dollar, are pegged to some degree to the US Dollar and Euro, whose countries’ financial policies have led to the crises over these past few decades. In the absence of any official currency that holds its purchasing power over long periods, there is gold and silver to which investors turn. In the past decade, these two precious metals have allowed people to keep their savings intact, in spite of, or perhaps because of, the financial problems faced by the developed world.

Bullion Star Chart
The price of silver, SGD, 2003 to the present