Singapore authorities surprised markets with their emergency policy meeting in January. Having spent most of a decade fighting capital inflows and their effects on the domestic financial system, the authorities are now attempting to prevent a dis-orderly unwind by providing more domestic liquidity and by intervening in the FX markets to prevent the SGD from falling too rapidly. Although Singapore is perhaps the ‘victim’ here, this doesn’t alter the fact that the surge in capital inflows between 2005 and 2013 has put Singapore at a heightened level of risk. At its heart, Singapore is an economy of 5 million people with three quarters of a trillion dollars of external credit risk on its balance sheet. This in our view disqualifies the SGD from being considered a safe heaven and at worst suggests that the currency and the country’s banking system may be vulnerable to a sharp correction. We suspect that if China depreciates the RMB, Singapore will have to either weaken the SGD (thereby insulating the ‘credit portfolio’) or keep the SGD firm (defending the banks’ external funding structures). If this dilemma emerges, we suspect authorities would defend the value of the banks’ assets while seeking to replace the banks’ offshore funding with domestic loans, resulting in a sharp fall in the SGD.