Saturday, August 11, 2018

The Singapore Strategy and why Turkey is ripe to be the first country to return to a full gold standard

On Aug. 10. a financial contributor to Forbes magazine wrote extensively on Turkey's current economic and monetary situation, and asserted that the country was at a crossroads in which they could either find themselves declining even greater towards hyperinflation and insolvency, or instead choose a different path that was outside the box of the world's debt based system.


Back in 1965, the fledgling country of Singapore found themselves in a similar situation that Turkey is encumbered with today, and where they then embarked upon an ambitious program which entailed two things.  First, backing their currency completely with gold, and secondly, abstaining completely from all foreign debt.  And as we can see today, while they rank just 38th in the world in regards to annual GDP, their per capita GDP is actually ranked 5th, and just under that of the United States.
Singapore gained its independence in 1965, when it was, in effect, thrown out of Malaysia. At that time, Singapore was backward and poor — a barren speck on the map in a dangerous part of the world. If that wasn’t enough, it was experiencing race riots, which came close to igniting a civil war. Singapore’s per-capita income in 1965, adjusted for inflation, was roughly equivalent to that of poor countries like Albania, Angola, Armenia, Guyana, Kosovo, and Mongolia, today. - Forbes
Following the path set down by their first leader Lee Kuan Yew for a number of years helped Singapore to rapidly grow and eventually expand into becoming the modern business mecca it is today.  But over time the country succumbed to implementing a debt based central bank system and while this helped prosper the nation in the short and medium terms, they now have a debt to gdp ratio of 110%.

So what exactly is the 'Singapore Strategy' and how could Turkey benefit by introducing it into their monetary system?

Ironically there is growing talk of Turkey needing to call upon the IMF to help them with their rising debt and currency problems.  But a better way, which proved out historically for the nation of Singapore, would be to set themselves apart by being the first to reintroduce gold into their monetary system, and reject the Western based debt system that has brought most of the world right now to the brink of collapse.
The first element was stable money. Singapore started with a currency board system — a simple, transparent, rule-driven monetary regime. Currency boards operate on autopilot, with automatic adjustments keeping the system in balance. Accordingly, currency boards deliver discipline to the spheres of money, banking, and fiscal affairs. For Singapore, the currency board provided stable prices and free convertibility of the Singaporean dollar, which was fully backed by foreign reserves and gold, at a fixed exchange rate. This established confidence and attracted foreign investment. 
Turkey should follow Singapore’s lead and adopt a currency board in which the lira would be linked to and fully backed by gold.  Such a gold-backed currency board would make the lira as good as gold. 
The second element was that Lee Kuan Yew ruled out passing the begging bowl. Singapore refused to accept foreign aid of any kind. This is a far cry from many developing countries, where, when you pick up the paper, all you see are politicians and bureaucrats trying to secure foreign aid from someone, be it an NGO, a foreign government, or an international financial institution, like the World Bank. By contrast, signs reading “no foreign aid” were hung figuratively outside every government office in Singapore. 
The third element was that Singapore strived to have first-world, competitive private enterprises. This was accomplished via light taxation and light regulation, coupled with completely open and free trade — in short, policies that enabled Singapore to become one of the Asian Tigers. 
The fourth element in the Singapore Strategy was an emphasis on personal security, public order, and the protection of private property. 
The fifth, and final, element in the Singapore Strategy was a “small,” transparent government — a minimalist government that avoided complexity and “red tape”.
Unfortunately for Turkey, their biggest obstacle in attempting to follow this strategy is not that they might not have enough gold to back their currency, but that they have a political leader who is too paranoid and authoritarian to allow the people and business the freedom to function in a free market.  In fact President Erdogan might actually have the political will to default on their foreign debt and reject use of the dollar in international trade, but when it comes to being willing to lower taxes and open up his economy for much more free enterprise, that would be the biggest stumbling block to a leader who recently fired and and even executed thousands of public officials simply because he lacks the ability to trust.

Despite the fact that Turkey's economy and currency are both rushing headlong into potentially even greater straits, they remain one of the most important geographical and geopolitical countries in the entire world.  And as a gateway to both Europe and the Far East, and where Turkey could significantly prosper by accepting a bit of direction from both Russia and China and their growing trade coalitions, there is no better time for Turkey to make a bold step away from a system that has enslaved and bankrupted countries under a pile of debt, and seize back control over their economy through the use of the most reliable form of money in history.

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