Ask HN: Keep cash positions in different currencies? | Hacker News Reader

Ask HN: Keep cash positions in different currencies?

5 pointslionhearted13 comments

I've been rolling this around in my head for a bit. Do you think it'd make sense to keep cash positions in a couple different currencies in case your currency melts down? If so, thoughts on which currencies and how much? Which bank/banks?

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I would love to hear more knowledgeable responses from someone familiar with historical currency devaluations, but it seems to me that:

1. Regardless of the crisis, some currency remains (or becomes) a reserve currency.

2. That country has for the past few hundred years always been an industrial power.

3. The currencies that have effectively died seem always to be connected to countries that are highly indebted or politically unstable.

4. Gold's price may look attractive now, but its price also has a habit of collapsing when people start to return to the market, making it more of a speculative gamble than a safe reserve (at least, talking about TRADING gold, not the physical stuff). If you live in a non-G7 country, maybe holding physical gold is a good idea if it seems like your economy might totally collapse, but in the G7, if your currency totally devalues, it means that the entire world economy has gone to hell and there are more important things to worry about than how much "savings" you have, like how much food and water you have.

Given 3, even if you COULD buy RMB (it is illegal to take RMB outside China, so how exactly would you spend the money, unless you are willing to move to China?) their government is a group dictatorship one "unexpected" event away from collapse, despite everyone's hopes for continued calm running. Britain is too small to resume reserve currency standing, and most of the other US creditors are of questionable long term stability.

Except for Japan. They have insane savings, have not gone to war since WW2, and have a government so focused on stability that Koizumi made huge waves with his "controversial" plan to privatize their postal banking system -- a plan that would not even take effect until several years after he left office. The Yen may not appreciate much, since no one likes to see it go much higher, but I would love to hear someone explain how it could possibly drop much either.

The Swiss Franc is known for it's stability against other currencies.

Aren't they facing serious trouble right now because of the extremely heavy emphasis of banking in their economy?

Sure, but that isn't going to necessarily affect their currency's stability (only it's valuation). The stability of the CHF is rooted in the country's deep history of political and social stability.

Even as a dictatorship, to call China unstable is to buy into Western propaganda that dictatorship is inherently bad. Rather, dictatorship is the best government for China, as long as the goal of government is to maintain the stability of China. China spent millennia not united; the only thing able to keep a country of that size together right now is strong, authoritarian leadership. The leaders of China are not stupid, they understand that democracy is necessary in the long run, they are just in absolutely no rush to bring it to the people, looking at the failure of Russia as the only example of a rush from Communism to Democracy.

A democratic China would be unstable. Right now, while the Communist Party continues to rule indefinitely, they have perhaps the only currency in the world guaranteed to slowly appreciate against the dollar, with a not insignificant chance of suddenly appreciating faster.

Is there truly no currency market in the RMB? I understand that it doesn't make a good "bribe your way across the border" reserve, but I would think it could make a good hedge in a portfolio.

And the Japanese banking system is still facing smoe collateral damage... http://www.economist.com/world/asia/displaystory.cfm?story_i...

An unstable dictatorship is not the opposite of a democracy. Nor is democracy something that "China" would do well with, especially given that the country in its current composition is an empire that contains several distinct countries.

Singapore did very well economically with a non-ideological dictatorship, as did Taiwan, both mostly peacefully, over the same postwar period that China went through successive mass slaughters.

One can hope that China makes the transition safely to a stable government, but while they continue to treat their various populations as simply pawns with no rights to health, safety, the rule of law, then dissatisfaction and unrest remain a risk.

I wonder if keeping the equivalent of $10k USD in something else might be a good "get the hell out of here and survive for three months elsewhere" hedge for people with a bit of cash who aren't too tied down to their local economy. You can use Elance, Odesk, etc to freelance from anywhere if you've got some in-demand skills. Doesn't take much to survive in Thailand, just getting out and having rent/food money for a while could be huge in a meltdown. I've been thinking over where/how it'd make sense to take a position - Seems like dollars, euro, and sterling might all be linked a bit. Chinese RMB? Yen? Some eccentric country that's still gold-based and can't debase their currency?

In fact, the yen and the dollar have been rising in recent weeks. The Pound and the Euro have taken a beating.Hard to say what might happen to the Chinese RMB as the rate is set within a narrow band by the Chinese govt.

For true "bribe your way across the border" purposes I would go with 1oz gold coins, or silver if you'd prefer more coins.

jim cramer has said before that one shouldn't have a position you can't afford to spend an hour/week investigating. however you may feel about his financial wisdom otherwise, this point seems sound. in this case, that'd mean an hour/week for each currency, reading up on that country's economics. you might have that kind of time, i don't know. first world western countries' currencies are very stable, and change slowly over time, their values increasing and decreasing by slow degrees. if the dollar, euro, or pound suddenly went horribly south, the rest of the world would definitely feel it, and their currencies would also likely plummet. so there's no safe harbor abroad for currency.

consider instead gold, silver, platinum, and jewelry. since we're talking about an 'escape scenario', they might be your best option. mr. wemmick in 'great expectations' had a not-terrible plan in terms of an unstable economy: he had gems and jewelry pinned under his lapel, and frequently touted the value of 'portable property'. this might be a better route to take than currency since it doesn't fix a destination, it's easily liquifiable, and very portable.

One way that you can do this is through a retail stock broker, like TD Ameritrade, with CurrencyShares ETF's ( http://www.currencyshares.com/ ).

I've done this with positions in the AUD and Swiss Franc. Those two currencies tend to move in opposite directions since the Swiss Franc is a safety currency due to Switzerland being a relatively insulated mature modern economy. AUD on the other hand, tends to be a growth play since Australia's economy is heavily based on the export of natural resources (think mining). The two currencies tend to move in opposite directions increasing the likely hood that your wealth will be protected in most cases. You can also use options to protect your positions on the ETF's.

I keep 10% of my savings in foreign currency (via CurrencyShares) and 10% of my savings in precious metals (Gold & Platinum Coins (Philharmonics and Maple Leaves)). The rest I keep either in a targeted retirement fund or my local currency (USD).

Obviously, this portfolio hasn't worked out very well for me, recently. :(

Also: I'm looking at Argentina as worst case here.

http://en.wikipedia.org/wiki/Argentine_economic_crisis

"In July, 1989, Argentina's inflation reached 200% that month alone, topping 5,000% for the year."

"In 2001, people fearing the worst began withdrawing large sums of money from their bank accounts, turning pesos into dollars and sending them abroad, causing a run on the banks. The government then enacted a set of measures (informally known as the corralito) that effectively froze all bank accounts for twelve months, allowing for only minor sums of cash to be withdrawn."

"In addition to the corralito, the Ministry of Economy dictated the pesificación ("peso-ification"), by which all bank accounts denominated in dollars would be converted to pesos at official rate. This measure angered most savings holders and appeals were made by many citizens to declare it unconstitutional."

Fundamentally this is an investment question. Because currencies trade against each other on an open market moving your money from one currency to another is speculation.

In the case of total economic collapse the only things of value will be things that cannot be bought: friendships, trust, favors, etc. Maybe you should make friends with a local farmer.

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