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Tradition has it that the only truly safe place to store your hard earned money is under your own mattress. That’s the homespun equivalent of saying that to keep money safe, you need to keep it as cash, rather than investing it. But in today’s volatile, globalized world, even the value of hard currency goes soaring up and plummeting down by various turns. And with even tried and true bastions of financial security (such as precious metals) currently losing value, is the investor who turns to new forms of currency (such as digital currencies) a forward-looking sage, or a myopic fool?
5 The United States Dollar
One of the only ways to get an accurate measure of how a nation’s currency is performing is to look not within said country’s borders but rather to compare the exchange rates between it and another nation’s money. One that is frequently used to measure the USD is the Japanese yen. And currently, the dollar appears to be doing quite well against Japan’s currency. In fact, the USD is at a five year high versus the yen, with the latter yielding a full 20% less buying power than it did earlier in the year. That’s good news for the outlook of our economy, and for Japanese exporters.
4 The Chinese Yuan
If there was ever any doubt that the government of China directly influences the value of their national currency (officially the Renminbi, but frequently called the “Yuan” after one of the most common denominations), just look at the exchange rate between the US dollar and the Yuan over the course of a two year period. During the last 24 or so months, the Yuan has hovered between 6.39 CNY and 6.1 CNY. That is clearly a currency pegged to the US dollar, which has, for example, seen fluctuations of nearly 25% of valuation when compared to the Euro during that same period.
3 Gold and Silver
Investors who were seeking a safe haven for their wealth and turned to the old favorites, gold and silver, are watching their money melt away these days. According to some analysts, a dollar invested in gold in 2010 would today be worth less than $7.50. (And no one invests just one dollar into precious metals, for the record.) That is a 25% drop in value. Why? Primarily because during that same period the stock market, gold and silver’s ancient adversary, has soared upward in value.
2 Treasury Bonds
Another area of investment traditionally seen as safe and sound, United States Treasury Bonds, are likely about to see a precipitous drop in value and allure. With the Fed likely to finally raise interest rates next year, the yield of the Treasury note is likely to drop even as the value of stocks (seen by many investors as the foil of the bond) may rise. An improving economy such as we seem to be enjoying right now is no place for conservative currency stashes.
1 Bitcoin Under the Microscope
It may be the darling of Libertarians and hackers everywhere, but at least some established financial organizations are betting against Bitcoin. The European Banking Authority has issued a strong warning against the new digital “cryptocurrency,” highlighting the risks of money without any established underpinnings. While Bitcoin may seem like the ultimate display of democracy in action when compared against a regulated currency (or a fiat currency, too), it may highlight the ultimate need for an institutional basis behind money should it crash and there be no network in place to pick up the pieces.