Using the Singapore Dollar as a “Global Currency” Proxy

Today’s chart addresses a question I often get “how do I diversify away from a strong dollar, given that the euro, yen, and other currencies don’t look especially attractive with negative yields?”. One way of looking at global currency risk is through the IMF’s special drawing rights (SDRs), a unit of account developed around the IMF’s express goal of supporting stable currencies globally. Although SDRs may be a useful benchmark, it is not a useful one for the many of us that can not open SDR-denominated accounts or buy SDR-denominated bonds.

One close proxy I look at instead is the Singapore dollar, whose monetary authority’s stated objective is to manage the currency as a form of monetary policy for its trade-dependent economy. Shorter-term, this means the Singapore dollar tends to be tightly managed against a trade-weighted basket of global currencies in order to minimize how much it swings against their weighted average, while long term, the Singapore dollar would be allowed to strengthen or weaken in order to tighten or loosen the Lion City’s money supply. Below is a chart showing how the value of SDRs vs Singapore dollars has evolved since 1981, with SGD data from the BIS.

Singapore dollar SGD vs SDR