How Geopolitics Could Make Singapore the World’s Most Important Gold MarketBy Gregor Gregersen, Founder, Silver Bullion
Last year I had the privilege to attend a dinner with Chan Chun Sing, a Singapore minister from the Prime Minister’s Office. I brought along a copy of Jim Rickards’s book “Currency Wars” to the dinner. In the book, Rickards described his participation in the US military’s first financial war games, which were held to simulate various scenarios that could upset the dominance of the US dollar in the global financial system.
During the war games, Russia led a bloc of countries to create a new currency based on a fixed gold ratio that was stored outside of Russian control in neutral and trusted Switzerland. Other countries could obtain this currency by depositing gold in Switzerland. Once this currency was established, Russia would stop accepting US dollars in payment for its commodity exports, requiring payment in the new currency instead. This would force third party countries to buy gold and sell dollars to get the Russian energy they depended on.
If the Organization of the Petroleum Exporting Countries (OPEC) and China joined this system, this would effectively undermine the dominance of the US dollar and inevitably bring about the creation of a new modern gold standard, and cause gold to appreciate immensely in importance and price.
However, such an “anchor currency” would need to be stored in a trusted, neutral jurisdiction and be easily audited by all parties to minimise the possibility of “cheating”; be it illicit gold removal, fake gold, or issuing of new currency without the required amount of gold to back it up.
While the war games created interesting scenarios, the establishment of such an anchor currency does not necessarily have to result from financial wars. As the world accumulates more debt and becomes more leveraged, another major financial crisis will likely lead to more calls for a new type of reserve currency that is less prone to being inflated unilaterally.
Regardless of what this new currency might be, there will be a need for trusted, neutral jurisdictions to act as escrows and keep it all honest. With economic power shifting increasingly to Asia, I am quite certain that it would not be Europe’s Switzerland, with its French, German, Italian cultures but Asia’s globally oriented Singapore, with its Western, Chinese, Indian and Malay cultures that will play more important roles in such a scenario.
Singapore is widely recognised as the Switzerland of Asia for its rule of law, independence and strong asset protection. While Singapore’s culture is heavily westernised, Chinese people can relate much better to Singapore than Switzerland because of shared language and culture. Mandarin Chinese, for example, is one of Singapore’s four official languages, with English being the common language.
Singapore has also been the model for China’s economically liberal and business-friendly Special Economic Zones, such as Guangzhou, established since the 1980s by Deng Xiaoping, the then Chinese leader who presided over the reforms.
In light of all of this, I thought that “Currency Wars” would be a good read for the Singapore minister, and I was pleasantly surprised when Chan told me that he had already read it. It made me wonder how many of such books might have influenced Singapore’s 2012 strategic push to become a major bullion trading hub.
What sets Singapore apart is the government’s ability to make pragmatic long-term policies that result in efficient institutions and allow the people enjoy the fruits of their labour to a much higher degree than other countries.
I am experiencing the difference first-hand, having lived in the United States (11 years), Italy (11 years), Germany (8 years), before moving to Singapore (10 years and counting).
Singapore’s success and consistent policies have created in residents an implicit trust towards the government. Lee Kuan Yew, Singapore’s longest serving Prime Minister, summed it up by saying: “If I have to choose one word to explain why Singapore succeeded, it is ‘confidence’”. When China needs international investors, they often seek Singapore as a partner, knowing that investors are more likely to invest in a project that Singapore is involved in.
Confidence is both the product and enabler of Singapore’s success. Singaporean politicians are always conveying to the nation the need to improve itself to maintain its stamp of quality. It is a big reason why thousands of global corporations have their Asia headquarters and R&D operations in Singapore. It is also why a train breakdown in Singapore must be fixed in record time (because it tarnishes the Singapore brand).
Singaporean politicians are pragmatic, capable planners that have to compete foremost on merit to advance. Chan, for example, worked himself up from an Army recruit to becoming a three-star general. He went on to study in Singapore’s top schools before graduating with First Class honours from Cambridge University and later completed the Sloan Fellows Program at the Massachusetts Institute of Technology (MIT).
The Singapore spirit is to take adversity and make it an advantage and source of strength. In 1965, Singapore lacked a strong military and enough clean water for its population. Today, Singapore’s armed forces can muster over 1 million soldiers, including active reserves, while its arms industry is manufacturing and selling amphibious combat vehicles to the US Army and artillery to India. It has also become a worldwide leader in water processing, and even exports water to Malaysia.
The government is extremely well endowed, with US$152,935 in net reserve per capita, which is the highest in the world. Singapore continues to be the only Asian country with a AAA credit rating by all major ratings agencies. Singapore sovereign wealth funds are some of the largest in the world and Singapore is one of the biggest foreign investors in China.
In 2016, The Wall Street Journal ranked Singapore as the 2nd freest economy in the world. The island state continues to be ranked highly by the World Bank as one of the easiest places to do business. Singapore is also ranked the 6th least corrupt country by Transparency International. Despite its size, Singapore is the 3rd largest financial centre in the world and is the 3rd largest petroleum refiner. A major tourist destination, three tourists visit Singapore yearly for every local resident.
Gigabit internet connections are becoming the standard for households and its medical and education systems are world class (Singapore ranks #1 in Math and Science scores ranked by OECD and boasts the 2nd most efficient healthcare system as ranked by Bloomberg). People also live four years longer on average than in the United States, according to the World Health Organization.
Prudent students of history know that gold nationalisation is real and has happened before. For example:
- The Unites States nationalised all gold under its jurisdiction in 1933 (Executive Order 6102 for gold and Executive Order 6814 for silver in 1934).
- UK banned gold between 1966 and 1979 to stem the decline of the pound’s value.
- Australia still has a gold seizure law allowing for “seizure of gold if expedient to do so, for the protection of the currency or of the public credit of the Commonwealth” (Reserve Banking Act of 1959).
When the next major currency crisis occurs, there might be political pressure from highly indebted countries to repatriate gold. If these countries were to nationalise gold, what should happen to gold held by citizens of these countries in Singapore?
Singapore will likely state that private property is protected and that foreign jurisdictional authority to seize gold does not extend into Singapore. This response would be in line with protecting Singapore‘s most treasured assets: the rule of law and the confidence of investors.
Betraying this confidence could mean an economic disaster for Singapore. This is why the country is an excellent location to store physical gold and silver as an insurance against future crises and black swan events.
Gregor Gregersen (a newly minted citizen of Singapore)
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