Did you know that Brunei citizens can use Brunei money to buy something in Singapore? If you hold a 10 Brunei Dollar banknote, you can spend it in Singapore just like a 10 Singapore Dollar note.
This happens because of a unique financial deal called the Currency Interchangeability Agreement (CIA). Singapore and Brunei Darussalam signed this pact in 1967. Under this agreement, both countries lock their currencies together at an exact 1:1 ratio.
Why Are BND and SGD Pegged?
In the late 1800s and early 1900s Singapore, Brunei, and Malaysia were all under British influence. At that time, they used the exact same currency system. First, they used the "Straits dollar" and later they changed it into the "Malaya and British Borneo dollar."
When Singapore became an independent nation in 1965, the old shared currency system began to fall apart. According to Monetary Authority of Singapore (MAS), it said that CIA was established later in 1967 to promote monetary cooperation between Brunei, Singapore, and Malaysia.
In 1973, Malaysia decided to drop out of the deal in 1973 due to global economic changes. However, Singapore and Brunei chose to stick together. Under the CIA, both countries’ currencies can be exchanged at par without charge.
The Brunei Darussalam Central Bank (BDCB) and MAS accept from banks the currency notes and coins issued by the other, and exchange them at par and without charge, into their own currency. Bank in both countries also accept or deposit, from the public and businesses, currency issued by the other country at par and without charge.
It is also said that businesses and members of the public should not be concerned about accepting payments in Brunei currency. This means people from Brunei can use their own currency to buy things in Singapore without using Singapore Dollars.
Economic Benefits for Brunei
Singapore has one of the strongest and most advanced financial systems in the world. By pegging its currency directly to the Singapore, Dollar Brunei gets a massive economic benefits. This protects Brunei from high inflation and keeps its currency from crashing suddenly.
Moreover, Brunei uses a strict system called a Currency Board Arrangement. By using this system, BDCB must back up every single note and coin it issues with real foreign money.
They cannot just print (new) money from nothing. For every new Brunei Dollar they print, they must save an equal amount of Singapore Dollars in their vault as a guarantee. This solid backing gives international investors total confidence, keeps the economy stable, and makes trade very easy.
Because the two currencies are locked together, Singapore's financial decisions directly shape Brunei's economy. Singapore uses its exchange rate to control prices and stop inflation. By following Singapore's setup, Brunei has kept its own inflation remarkably low and stable, averaging just 1.1% per year between 1981 and 2019.
How This Works
Technically, Brunei Dollar is not the official "legal tender" in Singapore and Singapore money is not the legal tender in Brunei too. Instead, they call it "customary tender."
Legal tender means the official money that a country's law recognizes for paying debts and buying goods. Usually, this is just the national currency that the country prints itself.
However, because of their special deal, it is normal practice for people to accept Brunei Dollars in Singapore and Singapore Dollars in Brunei. This unique system helps both nations.
It completely removes exchange rate risks, which usually make business and investments uncertain. It also lowers the cost of doing business, which makes tourism, trade, and investments much easier between the two countries.
Under this agreement, both central banks must return the physical cash they collect to each other. This process is called currency repatriation. It simply means that Brunei's central bank sends Singaporean money back to the Monetary Authority of Singapore (MAS). At the same time, MAS sends Brunei's money back to Brunei.
