Surging Singapore Dollar seen as risk for Yuan Deposits

Singapore’s surging dollar risks preventing the city-state from becoming an alternative to Hong Kong for yuan deposits as locals keep their savings in the faster-appreciating currency, according to Bank of China Ltd.

While Chinese currency deposits in Hong Kong have risen 75 percent from the start of 2011, a similar trend in Singapore is unlikely given the local currency’s 5.9 percent gain against the U.S. dollar this year, the biggest among Asia’s 11 most-traded currencies after the Philippine peso, said Zhang Qingsong, the head of the bank’s Singapore branch. The offshore yuan has advanced 1.4 percent against the U.S. dollar in 2012, compared with a 0.2 percent increase in the Hong Kong dollar, which is pegged to the greenback.

“It is the exchange rate between the Hong Kong dollar and the offshore yuan that allowed Hong Kong to gather a huge pool of funds,” Zhang said in a Oct. 18 interview. “If you want to keep the purchasing power of your savings, you choose a stronger currency. In Singapore, that won’t be the case as its dollar has appreciated greatly.”

Singapore authorities allowed the listing of yuan- denominated stocks in July and two Chinese lenders were given full banking privileges on the island this month. One will be granted permission to become an offshore yuan clearing bank, Singapore’s Ministry of Trade and Industry said in a statement in July. The yuan may become one of the world’s top three global trading currencies in the next five years, HSBC Holdings Plc said in an August statement.

via Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.