26 September 2025
How Singapore could avoid the "exhorbitant priviledges of being a Local Reserve Currency Hub
Early in the Debt Cycle
Singapore’s position today resembles the U.S.’s back in the early post-WWII decades: a trusted, stable, export-driven economy that others are happy to hold their monetary reserves in. But if it follows the same path unchecked, it risks repeating the late-stage
debt cycle consequences we saw in Britain in1949 and now see in America.
Here’s what Singapore might be considering
To avoid the pitfalls of being a local reserve currency, Singapore could:
1. Maintain Trade Surpluses and Real-World Competitiveness
• Singapore wants to resist the temptation to let its currency over-appreciate purely to meet reserve currency demand - not for trade / transactional reasons. All that this excess demand would do is to push-up asset prices. And this would favor those who have assets and not the majority who have mostly debt - thus exacerbating inequality and creating mounting social instability.
Singapore doesn't want this.
• Continue investing in high-value exports,
Like advanced manufacturing, biotech, and green technologies,
• And limit foreign purely speculative investment flows into government treasuries
or corporate bonds, or stocks and shares, or its real estate.
• Gear industrial policy towards productivity and innovation
Taking care to avoid asset price inflation – ie controls to stop capital being disinvested from industrial and revested into financial assets. This is the planning and regulation behind sensible industrial policy, where the state focuses on the sectors of the economy it wishes to promote.
2. Lesson from the U.S
America shifted from manufacturing to services too early and too aggressively. Why?
Ricardian economics
Globalisation / neoliberalism, it's about the free movement of capital, goods and services, and people, each country specialises in what it produces most efficiently, and trades with the others without respect for borders, in the interests of efficiency.
While the larger markets so created, offer economies of scale, innovation and finally cheaper goods for consumers.
Globalisation. In pracrise, this meant outsourcing manufacturing jobs to countries where labour was cheaper
Growing twin deficits as America began to run a trade deficit, importing the things it no longer made at home; the profits generated by surplus countries were sent back into American treasuries for safety; it now became so easy for America to borrow and live on debt; this trade deficit was followed by "fiscal irresponsibility" is it with so much easier to borrow and print if necessary when you are the reserve currency rather than balance the books. This is what is bankrupting America.
Singapore doesn't want this either.
2. Control Financialisation and Protect the Real Economy
• Prevent the financial sector from becoming too large relative to GDP, a common symptom of reserve currency status
• Regulate speculative capital inflows and real estate bubbles as above – don’t let asset prices overtake wage growth, at the risk of loss of purchasing power inequality and in stage revolt by the people.
Inflation is mostly the result of monetary expansion. Pegging the currency in some way to the price of gold or a basket of commodities wood restrain money printing because each dollar note is a promise to pay and that means it can be exchanged for gold but if you print there won't be enough gold in the Vault and ultimately you will have to dealing as Nixon did in 1971.
• Encourage long-term investment in productive enterprises, companies that make real things that people want - these will keep pace with any inflation because demand are in and supply are in balance ie not just paper assets - these are speculative such as derivatives options even the secondary market what do they add to the quality of life for real people?
This is where an industrial policy with tax and subsidy incentives, possibly even tariffs, could provide an answer.
Lesson from the UK
The City of London gained power at the expense of the Midlands and North - a cautionary tale. Watch the video linked above.
3. Strengthen Fiscal Discipline Without Falling Into Austerity
• Avoid easy borrowing just because foreign investors are eager to hold SGD or Singaporean bonds
• Use surpluses and sovereign wealth (e.g. GIC and Temasek) strategically - means invest counter-cyclically, let the government support innovation, and cushion downturns using money saved during upturns
• Maintain low public debt levels to ensure flexibility in crises and especially at times of Higher interest rates avoiding interest eating into government Revenue. Singapore's debt is mostly non-tradable and domestic, which is a good non speculative buffer.
4. Promote Regional Multipolarity, Not Dominance
• As a local reserve currency in Southeast Asia, Singapore would be best off facilitating balanced trade, not dominating it.
• Work with ASEAN, China, and India to create a resilient multi-currency, multi-polar region.
• Encourage the use of local currency settlement mechanisms such as QRIS, rather than forcing all flows through SGD.
Reserve status breeds resentment if it becomes coercive. Singapore wants cooperative credibility - peace and prosperity matter more than dominance.
5. Build Financial Firewalls: Capital Controls and Macroprudential Tools
• Stay alert to hot money inflows and be ready to impose temporary capital controls or taxes on speculative flows. Speculators will run a mile at the thought of capital controls locking in their money.
• Maintain counter-cyclical buffers (like MAS’s policy tools) to dampen boom-bust cycles.
• Enforce strict property lending and banking regulation to avoid credit excess.
Singapore's history of pre-emptive tightening (e.g. cooling property markets) is a model to stick to.
6. Avoid U.S.-Style Geopolitical Overreach
• One of the reasons the U.S. mismanaged its reserve status is imperial overreach: policing the world for dominance and to control the flow of resources by coercion rather than Commerce. This kind of overreach means neglecting its domestic base.
• Singapore must resist aligning too closely with any one great power and especially avoid militarising its regional role these two are not in contradiction necessarily.
So best to stay a neutral, rules-based trading hub, not a junior partner in someone else’s hegemonic rivalry.... and that's what Singapore is doing.
Conclusion
Singapore can enjoy the benefits of regional reserve currency status without the late-stage downsides seen in the U.S., if it avoids the traps of over-financialisation ie finance overtaking manufacturing as a percent of GDP), currency overvaluation (from trade deficits where foreign profits are invested in deep and safe Singapore assets) and especially avoid the intangible geopolitical hubris that makes you think you're always right and deaf to the criticism of others.
It should aim to be a stable, modest, industrial-financial hybrid, not a financialised empire. In short:
Stay small, stay smart, stay productive
That’s how Singapore could outlast the cycle that for America is ending in the fourth turning.
