Talk of a US debt default on its US$40 trillion debt misunderstands a basic structural fact: the United States borrows in its own currency. Unlike Greece, Argentina, or any nation that owes money in a currency it doesn't control, Washington issues Treasury bonds denominated in dollars, and the Federal Reserve can create dollars at will. This means outright default, in the sense of failing to pay bondholders, is a political choice, not a mathematical necessity. Congress could theoretically refuse to raise the debt ceiling, but the underlying capacity to pay is never actually in doubt: the government can always meet its obligations in nominal terms.
The real risk isn't non-payment; it's the value of the payment. When a government finances mounting debt by expanding the money supply, whether through outright printing or Fed purchases of Treasury debt, it dilutes the purchasing power of every dollar in circulation. That dilution shows up as inflation and, eventually, currency depreciation against other reserve currencies. Bondholders still get paid the face value they were promised. But that face value now buys less.
Singapore's Large Losses when USA Does this
This is where Singapore, in particular, absorbs the cost. A meaningful share of Singapore's foreign reserves and sovereign wealth holdings, through MAS and GIC, sit in US dollar assets, partly to anchor currency stability and partly because Treasuries remain the world's deepest, most liquid safe asset. When the dollar depreciates against the Singapore dollar, every one of those holdings is worth less in SGD terms the moment it's converted or marked to market, even though the nominal USD principal hasn't changed.
Singapore lent real purchasing power and gets back diminished purchasing power: a quiet erosion of national savings that never appears as a headline default, but functions as one in substance. Because MAS also manages SGD appreciation as a policy tool against imported inflation, a weakening dollar compounds the squeeze, hitting reserve values and complicating monetary policy at the same time. Singapore will greatly suffer
This is why economists describe debt monetization as an "inflation tax": one that falls disproportionately on foreign dollar holders rather than domestic voters, making it politically easier to inflate than to default. For a small, trade-dependent, reserve-heavy economy like Singapore, that tax is paid whether or not it ever signed up for it.
