Strengthening of the Singapore Dollar is Making Geographical Arbitrage More Attractive

In recent times, we hear more and more locals having the intention of retiring overseas or are already doing so.  This is due to the rise in standard of living in Singapore, coupled with the shocking inflationary pressures on goods and services in recent years.  This is the 'push' factor.  The Fifth Person recently also discussed the hard truth about retiring in Singapore in this video as well.  On the other hand, with all things being equal, the strengthening of the Singapore Dollar (SGD) against other ASEAN currencies makes goods and services much more affordable in the various ASEAN countries.  This is the 'pull' factor.  The combination of these 2 factors definitely makes retiring overseas very attractive, as a smaller pot of retirement funds will last a longer duration.

Let's look at how the SGD has performed against the major ASEAN currencies.

Bali is a very popular retirement destination, a favourite amongst digital nomads.  Looking at the trend over the past 20 years, SGD has appreciated against the Indonesia Rupiah (IDR) by a shocking 125%!  This definitely is one main reason that propelled Bali and some other regions like Batam and Bintan to the top spot.

Malaysia is also another top destination for retirement, with states like Penang and Johor taking the top spots.  The main reason for this is due to the similarities in culture, language and food, which makes it super easy for Singaporeans to adapt.  In addition, the close proximity of these states makes traveling to and fro a breeze.  All of these at a third of the cost is definitely an attractive pull factor!  In the past 20 years, the SGD has appreciated by almost 56% against the Malaysia Ringgit.  

Other ASEAN countries like Vietnam and Thailand and even the Philippines are also popular destinations for retirement.  Looking at the trends below, SGD has appreciated against the Vietnamese Dong, Thai Baht and Philippine Peso by about 99%, 12% and 27% respectively over the past 20 years as well.  

Although the future remains uncertain, but for the past few decades, the good governance of the country has propelled the Singapore Dollar to be a strong currency, and this inevitably allowed residents earning the currency to practice geographical arbitrage with ease.  To understand how this was made possible, I have asked ChatGPT on this matter, and the following is the response generated: 

"The appreciation of the Singapore dollar (SGD) against other ASEAN currencies over the past decade can be attributed to several factors.  It is important to note that currency exchange rates are influenced by a variety of economic, political, and market dynamics, and multiple factors can interact simultaneously.  Here are some key reasons that have contributed to the strengthening of the SGD:

1)     Robust Economic Fundamentals 

Singapore has a reputation for having a strong and stable economy.  It has consistently maintained sound economic policies, low inflation rates, and a favorable investment climate.  These factors attract foreign investment, leading to increased demand for the SGD and strengthening its value.

2)     Trade Surplus 

Singapore is known for its high export-oriented economy.  It consistently maintains a significant trade surplus, which means it exports more goods and services than it imports.  This surplus leads to a higher demand for the SGD, as foreign entities need to convert their currencies into SGD to engage in trade with Singapore.  This increased demand contributes to the currency's appreciation.

3)     Financial and Monetary Stability 

Singapore's financial system is well-regulated, transparent, and known for its stability.  The Monetary Authority of Singapore (MAS) implements prudent monetary policies and exercises tight control over inflation.  These measures enhance investor confidence, attract foreign capital inflows, and strengthen the SGD.

4)     Safe-Haven Currency

During periods of global economic uncertainty or financial market volatility, investors often seek safe-haven assets.  The SGD has been regarded as a relatively safe and stable currency, leading to increased demand during turbulent times.  This flight to safety further strengthens the currency against its ASEAN counterparts.

5)     Interest Rate Differentials 

Interest rate differentials between countries can influence currency exchange rates.  The MAS pursues a policy of managing the Singapore dollar against a basket of currencies rather than against a single currency.  If Singapore's interest rates are higher or more attractive than those of other ASEAN countries, it can lead to capital inflows and currency appreciation.

6)     Regional Economic Disparities

While ASEAN is an economic bloc, individual countries within the region may experience varying levels of economic performance.  Singapore, as a highly developed economy, may exhibit stronger growth rates and better economic indicators than some of its neighboring countries.  This divergence in economic performance can lead to a stronger SGD relative to other ASEAN currencies.

It is important to note that exchange rates are subject to fluctuations and can be influenced by short-term market sentiment and geopolitical developments.  Additionally, these factors may not explain the entire picture, and other unforeseen events or variables can impact currency movements." 

As of 21st June 2023, the SGD has hit a high exchange rate of 1: 3.4668 against the Malaysia Ringgit, before retreating slightly to around 1: 3.45.  As one who has planned for retiring back in my home country Malaysia, with short stays in Bangkok and recreational work in Singapore (as discussed in-depth here), the continual strengthening may help to expedite my FIRE plans.  Barista FIRE, here I come...!