Tag Archives: Singapore dollar

Cashless Society, Negative Interest Rates and Hyperinflation – Part 2

Imagine a country in which banks hold virtually no cash at all. A country where if you walk into a bank branch, the clerk will not be able to help you make a deposit into your account. A country where there’s a good chance that if you grabbed a wad of cash and walked into an electronics store or a major nightclub, they wouldn’t be able to assist you in buying a new computer or giving you a drink.

Welcome to Sweden, the land of virtual cashlessness! Although the Swedish Riksbank recently launched a full array of new and very colorful bills featuring celebrities such as famous children's book author Astrid Lindgren and film director Ingmar Bergman, cash usage in Sweden is in absolute free fall, down from SEK 100 billion in 2010 to SEK 70 billion in 2015. Several factors have combined to lead to this development.

  • For many years now, most Swedes above the age of 16 use a VISA, Master or Maestro debit card to settle payments, even for small sums below $10.
  • Sweden is - and has been for many years - at the forefront of both developing and adopting new IT technology and is one of the most mobile phone dense countries in the world, with upwards of 60% of the Swedish population owning a mobile phone as early as 1999. 
  • The Swedes' willingness to adopt new technology is evident from the proliferation of a transfer system called ‘SWISH’. The SWISH app enables any two parties holding a Swedish bank account and a Swedish phone number to transfer money to each other instantly, all with no fees. Even merchants use SWISH to accept payments. There are homeless people selling newspapers in Sweden that accept payment via SWISH. In Stockholm, these homeless sellers have even been accepting credit card payments since as early as 2013 using a smart phone extension known as ‘iZettle’, also invented in Stockholm.  
  • Over the last few years, more than 70% of all bank branches in Sweden have gone cashless, meaning that if you walk into a bank branch in Sweden, there’s about a 70% chance (or higher) that they would not accept any cash you are trying to deposit.
  • In Sweden, there are virtually no payments made by cheques any more as banks stopped issuing cheque books years ago.

Tech loving Swedes

Some of these facts might sound unbelievable and even absurd for someone not living in Sweden: No cash in the bank? Homeless people accepting credit card payments?

But y es, Swedes seem extremely willing to accept new cashless payment technologies, such as credit/debit cards, as well as payment apps, while forgoing old ones, such as cash and cheques. All with little or no suspicion towards these new electronic payment methods.

Other countries have tried the same. Singapore tried, or at least planned to try a new electronic cash system named SELT or ‘Singapore Electronic Legal Tender’. In an OECD report issued in 2002, the Board of Commissioners of Currency (BCCS) - which was the sole currency issuing agency preceding the merger with MAS in 2002 - outlined the envisioned structure of the SELT system where the goal was said to be a reduction of physical cash usage and its handling costs.

As can be seen in the 2002 OECD report, the SELT system was in a very early conceptual stage and only outlined the concept in very broad strokes. But its interesting to note that as early as 1998, BCCS held a strategic planning seminar in which it set out its ‘corporate vision’ for the introduction of SELT within 10 years.

The 2002 report further stated that the SELT system was to be put in place in order to effectivize the cash currency system. The SELT system never came to fruition, and as is apparent  from statistics displayed further down in this article, the amount of cash currency circulating in Singapore has increased immensely since 2002. As have the amount of cash ATM machines, where there were far less than 2000 units at that time. The OECD report also mentions that although cash transaction costs in Singapore are extremely low, the cost to the economy of these ATMs was approximately SGD 656 million in 1998 and was projected to exceed SGD 1 billion by 2006.

BCCS envisioning a system such as SELT 15 years ago shows that they were ahead of their time and that Singapore government institutions are some of the very early adopters in trying to implement new technologies as well as eager to make their government institutions more effective. This is in line with the Smart Nation Objectives that Singapore has outlined. In contrast to Sweden, the Singaporean approach has been to adopt new payment methods such as e.g. card payments, while still being extremely welcoming for older payment modes such as cash or even cheques. Singapore's very safe environment with extremely low violent crime rates makes it a nation that conveniently lends itself to cash payments.

However, as absurd as it might sound, the abolition of cash is slowly unfolding in many countries, with Sweden is probably at the forefront of this trend. Although a majority of stores in Sweden still accept payment in cash, there are an increasing number who don't. Swedish law doesn't require a merchant to accept payment in cash, which is a bit ludicrous considering that cash is still legal tender in Sweden. After all, legal tender normally means that whatever is legal tender should be good for the payment of all debts.

Now, if a merchant doesn't want to accept cash in the form of nationally issued notes, then so be it. But what is shocking is that, as was mentioned at the beginning of this article, about 70-80% of all Swedish bank branches have removed all cash handling. All within just a few years. No, it's not a typo. Walk in to a random Swedish bank branch and try to deposit or withdraw a larger sum of cash and up to 80% of the time you'll get rejected with a polite "sorry, but this branch doesn't handle any cash".

Such branches only provide services such as financial advising, housing loans, credit cards services etc. The real aims of this strategy aimed to get money out of your pocket and into the pockets of the banks. Bank staff are pushed by their management to sell house loans, credit lines,  speculative paper instruments, and more savings accounts. This trend has also been evident in the extreme case of Wells Fargo's recent banking scandal involving the concept of cross-selling accounts with the goal of every Wells Fargo customer holding a minimum of eight Wells Fargo  accounts. Why? Because, in the words of former Wells Fargo's Chairman John Stumpf : 'Eight is great!'.

All this means that if you open an account at a Swedish bank branch, you can only fund your account by either going to a branch that does handle cash, or by transferring money to the new account from an already existing account.

During the last 5-10 years in Sweden, M0, which is an aggregate measuring the amount of physical cash in an economy, has collapsed from over SEK 100 billion down to about SEK 70 billion.

m0 sweden
M0 Money Supply in Sweden

In Singapore, cash money has increased from around SGD 21 billion in 2010 to SGD 33 billion in 2015.

m0singapore
Cash money in Singapore

Furthermore, statistics from the World Bank shows that the number for Automated Teller cash Machines has increased from less than 48 per 100K citizens, to more than 59 per 100k citizens in 2014. And the trend seems to be continually increasing.

ATMs in Singapore
Increasing number for ATMs in Singapore

The above data means that there are now more than 3200 ATMs island wide in Singapore as compared to less than 2000 units in 2004.

Cashless Means Less Crime!

One argument for making an economy totally cashless is that it would cripple crime. Crime syndicates, burglars, drug dealers, petty thieves all rely on an anonymous paper cash system to sell their contraband. If we just eliminated cash paper bills, then drug dealing, robbery, burglary, even tax fraud would almost totally disappear. Right?

One of the most avid proponents of a total cash ban is a famous Swedish musician by the name of Björn Ulvaeus. Ulvaeus, is known as a member and founder of the super group ABBA (that ironically wrote the song "Money, money money"). A few years back, Ulvaeus's son got robbed several times and some of his expensive music equipment was stolen. Ulvaeus' rationalse behind banning cash is that if there was no cash at all, but only electronically traceable payment systems, burglars would not be able to sell the stolen items on the black market, and as such, the theft would have never occurred.

Although slightly confused, Ulvaeus is still onto something. In two opinion articles published in a major Swedish newspapers a few years ago, he mentions barter and its limitations.

However, history shows time and time again that humans have overcome the limitations of barter in numerous ingenious ways. Be it through using precious shells, stones or metals - such as gold and silver - or be it through local and informal credit systems, the challenges of barter have always been vanquished as long as the need and demand for such a system exists.

For instance, cheques issued by the army and used by British soldiers stationed in Hong Kong in the 1950s, started to circulate as a cash currency. The faith and credit in these cheques among local merchants was universal, so why bother with the inconvenience of cashing them in when you could let your supplier do that instead. Anthropologist Keith Hart tells the story of his brother stationed in Hong Kong in the 1950s. Keith's brother was more than a little surprised when he one day he found a cheque signed by him 6 months earlier laying on the counter of a local bar with more than 40 other small signatures on the back stemming from each merchant that had legitimized the validity of the cheque. A game of confidence. A spontaneously arisen form of cash.

In jails, alcohol, sticks of cigarettes and more recently ramen noodles, are being used as currency. These goods arise spontaneously as the universally most sought after and can thereby be used as currency or money to buy anything else. No government, army, police or bank was needed to give these goods the status of money. They emerged spontaneously in the market place just as gold and silver have done so many times throughout history.

Today's banking system is therefore showing itself for what it really is: A pyramid scheme where your money is used to speculate in questionable asset classes whose value is propped up only by the very investors (banks) that are buying into these asset classes with the help of money emanating from an endless pool of credit fueled by central banks' artificially low or even negative interest rates.

Negative Interest Rates and Cashless Society: A Precursor to Hyperinflation?

When the negative interest rates of central banks spread to the commercial banks, a lot of people will naturally want to withdraw their money. As long as cash is readily available, this is not an issue. At least not as long as not everyone decides to withdraw their money all at once. But if cash use is highly limited, as per the example of Sweden, withdrawing your money will be hard or impossible. The resulting cashless or 'cash strapped' society is effectively hindering a bank run to happen, as this in reality gives the banks a debt cancellation or at least a massive debt forgiveness, because remember, the balance on your account is the banks debt owed to you. If there's no cash, then how can the bank pay its debt to you?

More on this in Part 3 of this series....

Sources:

http://www.oecd.org/futures/35391062.pdf
http://www.mas.gov.sg/currency.aspx
Debt: The First 5000 Years - David Graeber
http://www.scb.se/
https://www.riksdagen.se/sv/dokument-lagar/dokument/yttrande/nu2y_GN05NU2y

Singapore, Brunei, and the $10,000 banknote

In 2014, Singapore stopped printing the mammoth S$10,000 banknote, one of the world's largest value banknotes, citing "risks associated with large value cash transactions." Although it is no longer being printed, the S$10,000, which is worth around US$7,400, remains in circulation and continues to be accepted as legitimate legal tender. But once deposited in the banking system, all S$10,000 notes will be returned to the Monetary Authority of Singapore (MAS)—the institution responsible for issuing notes and setting monetary policy—to be destroyed. With no new ones being created, the supply of S$10,000 can be expected to steadily shrink.

The title of world's highest-denomination banknote in production now passes to neighboring Brunei, which issues the B$10,000, also worth about US$7,400. Brunei, a small nation on the island of Borneo with a population of 450,000, is the world's fourth richest country (ranked by GDP per capita) thanks to its oil & gas reserves. Interestingly, due to a long financial relationship between Brunei and Singapore, Brunei dollars are considered to be "customary tender" in Singapore (more on that later). So even as the S$10,000 is slowly phased out, the B$10,000 may still have a backup role to play.

Singapore $10,000 from 1980 (discontinued issue)

Singapore and Brunei have an agreement—the Currency Interchangeability Agreement—dating back to 1967 which obligates the monetary authority of each nation to accept the banknotes of the other nation at par with their own currency. Private Singaporean banks can thus safely accept Brunei dollar notes for deposit, knowing that the MAS will not only buy these foreign notes at a one-to-one rate with Singapore dollars but will do so without charging a fee. Vice versa with Bruneian banks.

Singapore dollar denominations

MAS ships all the Brunei paper dollars it receives back to Brunei. Likewise, the Autoriti Monetari Brunei Darussalam (AMBD), Brunei's monetary authority, flies Singaporean dollars back to Singapore. According to this 2017 article, MAS has sent some B$1.3 billion annually to AMBD over the last three years. This is actually quite a lot of cash. Recent data from the AMBD shows that there is only about B$1.26 billion worth of Brunei banknotes and coins in circulation, most of this in the form of the B$100 note. Given that B$1.3 billion is shipped back each year to Brunei, the entire stock of banknotes circulates through Singapore once-a-year. Incredible!

While the B$100 note is the most popular Bruneian denomination, this hasn't always been the case. Through late 2011 and 2012, demand for the gigantic B$10,000 note exploded to B$1.5 billion, up from its regular level of around B$50 million. This spike was so marked (see below) that the entire supply of Bruneian banknotes effectively doubled, a situation that lasted until 2013 when a large quantity of B$10,000 banknotes were redeposited into the banking system. There is no indication what caused this pattern.

Brunei's money supply since 2011

As I mentioned earlier, the Singapore-Brunei Currency Interchangeability Agreement describes each counterpart's banknotes as "customary tender", differentiated from "legal tender." In Singapore, all currency notes and coins issued by the MAS are deemed legal tender. This means that any debt or transaction can be settled using MAS-issued banknotes, although if a payee (the person taking a payment) notifies a payer ahead of time, they can choose to avoid using legal tender and settle on an alternative means for transacting, say gold or euros. Since Brunei dollars are only customary tender, there is no default legal obligation on the part of retailers to accept them.

Modern $10,000 Brunei banknote

While many retailers in Singapore accept Brunei dollars, not all do. Offending retailers can be reported to MAS. And when they are reported, they usually comply.  Presumably this acceptance isn't forced on retailers, since Brunei dollars aren't legal tender, but is asked of them in good faith. Come on guys, take one for the team.

The monetary relationship between Brunei and Singapore is an old one. Prior to their independence, Malaysia, Singapore, and Brunei were all members of British-run currency board, the Board of Commissioners of Currency, Malaya, which issued Malayan dollar banknotes. The Board of Commissioners was initially established in 1899 by the British colonial authority. A currency board is a monetary system in which the issuer of banknotes (and deposits) maintains a 100% reserve for the liabilities it has issued. In the case of the Malaya currency board, this reserve consisted entirely of assets denominated in British pounds. The advantage of a 100% reserve is that there is no way that the peg can break, so investors needn't worry about exchange rate fluctuations.

1941 note issued by the Board of Commissioners of Currency, Malaya

Already merged on a monetary level, Malaysia and Singapore embarked on a post-independence political merger in 1963, but this political union fell apart in 1965. Ongoing distrust of the Malaysian administration by Singapore led to the abandonment of the currency board arrangement in 1967, with Malaysia, Singapore, and Brunei all issuing their own currencies for the first time. The three then drew up the Currency Interchangeability Agreement, obligating each to accept the others' banknotes at par, but Malaysia dropped out in 1973, leaving Brunei and Singapore. And this is how things stand to this day.

While the Singapore dollar is no longer based on a currency board—the MAS operates what is referred to as a managed float regime—the Brunei dollar continues to be operated on the principles of the old currency board. Rather than pegging to the British pound, the AMBD fixes the Brunei dollar against the Singapore dollar. However, the AMBD does not operate an orthodox currency board because it maintains a slightly-less-than full reserve of Singaporean dollar assets.

The monetary relationship between Singapore and Brunei constitutes a currency union, much like the Eurozone. In the same way that the European Central Bank calls the shots for the group of euro-using nations, the MAS is in charge of the Singapore dollar zone. Brunei is a passenger in this relationship, much like how Greece is along for the ride in Europe. Put differently, whereas Greece imports the monetary policy of a much more powerful authority, the ECB, Brunei imports Singaporean monetary policy.

Which brings us back to the $10,000 note. The denomination structure of Bruneian coin and note issue is the one bit of monetary sovereignty that Brunei gets to control. And since the Interchangeability Agreement obligates Singapore to accept all Brunei banknotes, Singapore effectively imports the denomination policy of its smaller neighbour. The $10,000 note is dead, long live the $10,000 note!

 

To understand the history behind the Brunei-Singapore monetary relationship, I relied on the following sources:

  1.  MAS Macroeconomic Review, April 2017. Pgs 73-76 [link]
  2. The Malayan Currency Board, 1938-1967. By Josephine George, 2016 [link]
  3. The Dissolution of a Monetary Union: The Case of Malaysia and Singapore 1963–1974. By Catherine Schenk, 2013 [link]
  4. Second separation: Why Singapore rejected a common currency with Malaysia. The Strait Times, May 24, 2016 [link]

 

BullionStar accepts cash payment, including the SGD 10,000 for bullion purchasesBullionStar accepts cash payment, including the SGD 10,000 note, for bullion purchases

Mustafa Centre: Gold in Singapore

While there are a number of specialist companies such as BullionStar servicing Singapore’s retail gold bullion market, the most unusual place to buy gold bars in Singapore must be the Mustafa Centre in the Little India neighborhood.

Located in a building on Syed Alwi Road, and part of another adjacent building on Serangoon Road, the Mustafa Centre is a cluttered haphazard department store and arcade that seems to sell everything from clothes to electronics, from perfumes to gold jewelry, and everything in between. It is also known as being one of the biggest gold jewelry outlets in Singapore.

Crowded and Congested

The Mustafa Centre itself is frequently crowded, often congested, and stays open 24 hours a day. Even trying to approach one of the entrances to the Mustafa Centre can be a stressful experience, and this is after navigating through a maze of often crowded streets if you find yourself approaching from the nearest MRT Station, which is itself a 15 minute walk from Mustafa’s premises.

Once you do happen to find Mustafa’s gold jewelry section, which is located in the basement 1 level of one of the centre's buildings, you will have to navigate past a floorspace crammed with clothes displays before stumbling upon a series of interconnected aisles assigned to gold jewelry.

While this jewelry space is about the size of a basketball court and stacked full of counters displaying gold earrings, gold rings, and gold chains and necklaces, the gold bar and gold coin display is relegated to a tiny rectangular counter, as if it was an after-thought among the masses of gold jewelry being hawked. This small gold bar and coin counter is itself cluttered, and badly presented, and is reminiscent of the display cases of a second-hand IT equipment shop.

Limited Selection

The advertised prices for the limited selection of gold bars and gold coins that are on offer at Mustafa consists of a partially typed and partially hand-written price list page that sits on top of the counter. When this correspondent visited on the Sunday afternoon of 29 October, the price list strangely had the dates 28 - 29 October scrawled at the top, as if it had just been written one time that weekend on the Saturday and then not updated over the weekend.

The accuracy of the prices on that particular price list are therefore called into question. Where the Mustafa Centre sources its gold prices or 'Gold Rate' from is also not clear. In India and India's expat communities, 'Gold Rate' is a term often used to refer to the gold price.

Mustafa's bullion products and their prices, although typed, are squashed on to the list, with various hand-written notes along the left and right side margins. Strangely, parts of the list are highlighted in yellow highlighter marker. What this signifies we do not know, but perhaps it refers to the products that are in stock as opposed to out of stock.

Mustafa's gold product price list, 28-29 October

Within the actual display cases of Mustafa's gold bar display cases, the gold bars are very much crammed into the display area as if everything in stock is actually on display. The old adage of "more is less" as regards presentation and visual display seems to have been lost on whoever lays out the Mustafa display cases.

Mustafa's gold bar display cases - Pack 'em in, Pile 'em high...

Disappointingly, there is also a very limited range and brands of gold bars and gold coins actually offered by Mustafa's gold bullion counter, with nearly everything in the bar section being of the PAMP brand, and with very few gold coin types at all.

Mustafa's gold bullion display cases - hidden in a small section of the gold jewelry store

A number of precious metals research consultancies regularly do field trips to bullion markets around the world, including Singapore, so as to gauge at first hand the level of retail demand for bullion in a particular market. As regards Singapore, some anecdotal evidence we have heard from these consultancies is that it is virtually impossible to calculate the level of gold bullion demand in the Little India area.

Some of the reason for this is because gold bars and gold coins regularly arrive into Little India that have been hand carried from countries such as Dubai or other regional markets. And so this gold would not be reflected in the Singapore supply statistics of, for example, the Swiss refineries or the Canadian and Australian mints.

There are also a lot of resales of gold bullion in Little India, such as a parent swapping gold bars for gold jewelry to give to a sibling as a wedding present. It is therefore difficult to estimate where the gold bullion sold in Little India comes from. Not Mustafa specifically, but this issue must be borne in mind as regards Little India in general.

BullionStar's Spacious Shop and Showroom

In contrast to Little India's Mustafa, BullionStar could not be more different. BullionStar's shop and bullion showroom in central Singapore is located in an easily accessible and well-known section of New Bridge Road across from Clarke Quay Central Shopping mall. BullionStar's premises is also adjacent to the Clarke Quay MRT station. Those working in the Central Business District (CBD) will find that BullionStar is just a short lunchtime walk from the CBD.  And from Chinatown, BullionStar's showroom is less than a 10 minute walk.

Spacious Display Cases in BullionStar's Shop and Showroom

All of the gold bars and gold coins in the extensive range of gold bullion stocked by BullionStar are sourced either directly from the world's most prestigious precious metals refineries and mints such as Argor-Heraeus, PAMP, Heraeus, Valcambi, and the Royal Canadian Mint, or are supplied directly to BullionStar by the world's most renowned precious metals wholesalers such as Dillon Gage and A-Mark. BullionStar staff are also knowledgeable about all aspects of the range of gold and silver bullion stocked.

In BullionStar's shop and showroom, the floor-space is generous, the design calm and ergonomic, with many display cases devoted to gold bullion and silver bullion. Nothing is cluttered, and visitors and customers entering the air-conditioned showroom will be able to browse and view a huge range of gold bars and gold coins, and silver bars and silver coins, with every product type stylishly and spaciously displayed in its own display case. All display cases are also well-lit and well presented.

An impressive feature which BullionStar customers find useful are the electronic screens next to each display case which show updated prices for those products. These prices are live and are displayed electronically and updated electronically in real-time.

A final point to note is that the Mustafa Centre's gold bullion counter does relatively poorly in customer reviews, with customer feedback of poor customer service, dis-interested staff, and prices higher than elsewhere in Singapore. Based on reviews on the Singapore website 'Bullion Reviews', Mustafa scores lowest out of all 6 Singapore bullion dealers featured, with Mustafa getting a total score of 3.9 from 27 reviews.

In contrast, on the same review site, BullionStar receives a total score of 9.1 from 131 reviews. And BullionStar's prices are generally perceived to be some of the most competitive, if not the most competitive, in Singapore.