Hedging Against The Dollar: Opening A Foreign Currency Bank Account vs. Buying A Currency ETF

Lot’s of people have been asking me how to open up a bank account denominated in a foreign currency. The main reason appears to be a desire to hedge against future declines of the dollar. For example, right now the US dollar is trading at all-time lows versus the Euro, and at 30-year lows versus the Canadian dollar.

I must admit that I have no clue how to do this if one is not a citizen or permanent resident of another country. If you know how, please do enlighten us in the comments.

Now, I’m no currency expert, but doesn’t this sort of behavior seem like performance chasing? It’s the new “sure thing”. I figure if you own a good chunk of international stocks, you are already enjoying some foreign currency exposure. In addition, a weak dollar makes our exports cheaper across the border, which increases sales for domestic goods. As I expect to keep earning and spending US dollars for the foreseeable future, I don’t see any need for any additional hedging. If anything, I might hold more international stocks, but I’m still open to contrary opinions.

Let’s say you do have a desire or need for some currency hedging. Instead of opening up a bank account in Euros, here are two alternatives:

Foreign Currency CDs at EverBank
EverBanks offers what it calls WorldCurrency Certificates of Deposit, which invest in a variety of foreign currencies. For example, with the Euro CD your $10,000 will be converted to Euros, earn an interest rate between 2.50-3.0% APR depending on term length, and then be converted back to US dollars upon maturity. The British pound CD is currently earning between 4.25 and 4.50% APR. So you’ll have the chance to make (or lose) money from differences in exchange rates in addition to earning interest. Here are more pros and cons:

- Guaranteed interest rate
- $10,000 minimum purchase
- Available in 3, 6, 9, and 12-month terms. No account fees
- FDIC-Insured against bank failure, but not currency losses
- EverBank likely makes money off the yields in addition to the conversions: ?The currency conversion rate will be within 1% of the wholesale spot price EverBank pays for the currency.?

Foreign Currency ETFs from Rydex
Rydex has a group of foreign currency ETFs that come close to pure plays on that currency. For example, Euro:USD exchange rate is approximately 1.39:1, so the share price of the CurrencyShares Euro ETF (FXE) is $139. If the exchange rate goes to 1.50:1, then the share price would be about $150. Along the same lines, the British Pound Sterling ETF (FXB) has a share price of $201.

In addition, the ETF do effectively earn interest like bank accounts, as they give off monthly dividends. The Euro ETF is currently yielding 3.39%, and the British pound ETF is yielding 5.46%. This seems pretty good, considering Capital One 360 UK is yielding 5.25%. More pros and cons:

- Can buy as little as one share, from existing broker
- You are subject to possible stock commissions, and bid/ask spread
- Possible premium/discount to NAV
- Expense ratio is about 0.40%
- Trade in and out at anytime during market hours

Comparing the EverBank CDs and the CurrencyShares ETFs, it would seem that the ETF would win out if you had a broker that offered free trades like Zecco or WellsTrade.

Finally, you may be able to purchase or exchange into foreign currencies directly via a FOREX-specific broker or a standard stock brokerage that offers such capabilities. I’m not sure how much interest these sites pay though – I wonder if it is is standardized or if it varies like money market fund rates here.

Comments

  1. I’m inclined to ask what people intend to accomplish with their hedge against the dollar. Do they 1) fear a failure of the currency and wish to have some “real money” in the short term or 2) fear a devaluing of their long term retirement assets because they are mostly denominated in dollars.

    If you fear a currency failure (and the consequent social disruption), I have no idea what to suggest. That is so much larger than I can imagine I wouldn’t really know how to prepare. Perhaps ask one of your gun enthusiast friends to introduce you to firearms? At least if you are wrong, and the world doesn’t end as we know it, you’ll have learned something about a potentially fun hobby.

    If there’s one thing people seem to overlook when preparing for the worst, is that life won’t stop. They talk about gardening and hunting and so on. But if you follow this thread on currency failure in Argentina, http://www.peakoil.com/fortopic14183.html, you’ll see he says, “You still have to go to the office/work/whatever.”

    Now, if you simply fear a devaluing of your retirement assets, then I feel like David Swensen’s Unconventional Success is compelling. He suggests that foreign equities make a better investment choice than bonds, etc. In his opinion, you effectively have bonds in your portfolio to lower volatility, not for their return (which you anticipate and expect to be lower than stocks). You’ll already get foreign currency exposure through your foreign stocks, and you’ll also expect to earn a better return.

    I admit, 6 months ago I toyed with trying to open a foreign bank account. I gave up because it seemed difficult, and there was a good chance it was going to be a losing proposition (in fees and such), or just plain inconvenient. Since reading Swensen’s book, I might be inclined to just adjust more of my equities overseas but not to pick up a foreign savings account.

    And I guess I’d toss out one more thing to think about. I’ve been down on the currency for a while, and indeed I can look back and say, “I was right.” But looking back is different than looking forward. There is a lot of fear that the currency will lose more value, but bottoms also have a way of striking at “the moment of greatest fear.” You’d feel like a dope if you bought foreign currency at the very worst moment. At least with equities, you are buying something you hope to have a good return.

  2. Personally, I think it’s mix of #2 and a higher return/profit motive. By “hedge”, sometimes I think they just mean “hedging against looking back and finding out I could have made a lot of money”. If you read the media’s Cliff’s notes version of things, it seems like a slam dunk that the dollar will continue to decline. My thinking is that not only do you have to get in at the right time, you also have to get out before the dollar goes back up. I’m not smart enough for that :)

    That link was kind of scary. Telling everyone to buy body armor? I think such survival/disaster prep will be more on my mind after having children.

  3. This is a great topic – thanks for the post!

    In my case, there’s an additional third reason: my in-laws live in one of the newly-roaring giant economies of the world (ie, China or India – I figured that only narrows it down to 1/3 of the world’s population, so it’s not too much loss of anonymity!).

    Although they have pensions and a home and think of themselves as more or less prepared for retirement, as emergencies and health crises and such come up, we want to be sure we are in a position to step in. Since the times at which we might suddenly need to pay out of pocket for open heart surgery may not be up to us, we’d like to be able to have savings that can be drawn down in the relevant currency with little warning without risk of huge losses.

    (Although I will also admit that, while I’m not really going to go buy body armor, I do occasionally imagine that if things here looked to be taking a quick dive for the worse, we might go live near his family for a decade or two…)

    The currency ETF idea is an intriguing one. We’d been leaning towards just opening a local account there and stashing money in it (which we can do through his legal status there), but perhaps a combination of the two would be a bit more stable, and meet our needs just as well….

    Thanks again for the post!

  4. “As I expect to keep earning and spending US dollars for the foreseeable future, I don?t see any need for any additional hedging.” by Jonathan

    This may even affect you. If China’s currency were to appreciate, the US dollars in your pocket aren’t going to buy much @ Wal-Mart or any US retailer. There’s no reason to fear a depression, but hyperinflation due to our central bank (Fed). Once the Fed inflates to stem the recession, China and any country with a fixed rate will be forced to inflate too. As these countries start experiencing even greater levels of inflation, dwarfing inflation in the US, they will face a real test.

    In terms of hedging I suggest exchanging US dollars for Chinese yuan (suggest taking delivery). If China maintains the fixed ratio you can always convert back to US dollars with negligible loss. There’s little chance of China increasing the ratio with hyperinflation already present and they just increased borrowing rates. The ?win? comes if China decreases the ratio, letting the yuan appreciate against the US dollar, to stem hyperinflation.

    The unknown is if their markets seize up and everyone tries to liquidate into cash (a credit crunch cause deflation, and money appreciation in China too). In the latter case China would inflate, just as the US Fed is doing, but they will hesitate to maintain their fixed ratio or risk even greater protectionism (in the meantime convert your Chinese yuan to US dollars). As an added bonus you have the Democrats oddly demanding that China let their currency appreciate. By the way, this sort of action is happening in the Japanese yen, but they are still maintaining their currency after some appreciation, which wiped out some currency traders. http://tinyurl.com/2xo8fd

    Amazingly, for the first time since the Great Depression the US dollar is appreciating *against* housing. Too bad cheaper housing is going to hurt everyone who sees housing as a “sure thing.”

  5. Since people are thinking it, gold is not a hedge at this moment. Let me dispel one incorrect myth: gold is not money, but a commodity in the US. It?s a bad situation, but true. Money is the stuff @ Wal-Mart?s registers: US dollars, checks, money orders, and credit cards.

    As we are now in a recession all commodities are eventually liquidated for money ? money appreciates in value. Logically, that means selling gold to get into US dollars. Proof is the drop in spot gold as the market sank in late August. If there?s a depression, unlikely with an inflating Fed, spot gold will only go lower in terms of US dollars. Once the Fed inflates the spot gold will eventually rise above $700 to reflect the US dollar?s depreciation. ?Eventually? may take years depending on the severity of the recession (downward pressure) and the rate of inflation (upward pressure). We know who wins in the long-term: the Fed (inflation).

    In essence, the current rise in spot gold are ?gold bugs? calling a bottom, and they?re just too early. Inflation isn?t instant across the country ? it takes time for it to go from investment bankers in NY to the price of chewing gum in FL. It?s also why housing is still appreciating in value for certain parts of the US. There are just too many people holding gold ready to dump during a full recession.

  6. I use to hold Euros at different brokerages. Made interest plus the increase in the euro vs. dollar. Just open an account and have the base currency changed to whatever currency you want to hold. I am not sure how good of a move into non dollar base assets is at this time. A couple years ago it seemed to make more sense. Now that it’s getting lots of mainstream media play it will probably bounce. Unless the fed gets to a policy of cutting rates.

  7. We are investing for the long-term. There are several risks in investing, currency risk is one of them. Any such reactive step to invest in either world currency CDs or foreign currency accounts now, is similar to market timing. Market timing has its own drawbacks. We don’t do that. Instead we stick to our disciplined investment philosophy. As mentioned by Don, we have invested in developed market and emerging market ETFs for our international exposure. That in the long run should be good enough.

  8. I find that my stock investments are already a play in the currency game. 25% of my total equities portfolio for the last six years has been in international stocks. And although the domestic markets have seen positive gains for many consecutive years my foreign stocks have outpreformed. Not to mention that the mega cap U.S. companies have a great deal of exposure to foreign markets.

    So between foreign equity positions and investments in American companies doing tons of business abroad I feel like I’m playing in the currency arena already.

  9. You can open a citibank account in Indian rupees in India.
    Indian rupess was US$1 = 50 Rs, 2 years back, now it is US$1 = 40Rs.
    I think indian and chinese currency will only grow stronger.

  10. hedging against the US dollar in a forex ETF or CD is something you should have done a year ago. while a dollar crash isn’t out of the question, I’m not convinced that it’s going down much further, and if the DX drops into the low 70s we’re all f’ed anyway.

  11. Siggyboss,

    You seem a bit negative and fearful of doing something out of the ordinary. I was like that a few years back…but I got tired of getting whacked…so I started learning and taking small risks. I now trade Canadian stocks and currency futures and landed 12% gains on top of the currency interest rates. However, for all the effort/learning, the best investment I have made this decade was buying 100 Credit Suisse ingotcards (1 oz gold) for $421ea just about 36 months ago. At $720 last week it rings the bell at an about 80% gain. At the transaction time I was ‘rationalizing’ to myself that the lost interest income was my ‘insurance premium’ cost for the diversification.

    Heh…and that ‘greatest gain’ also took the least amount of effort to set up. If ‘des is torture, tie me to da wall :^)

    You are right that WalMart will not take gold bars, but there is a ready line of folks that will exchange Greenbacks for one or more anytime I might want to buy something.

    Sometimes you just have to swallow hard and take a real risk to land something exceptional. I’ve lost a few…but I feel amazingly better inside taking the power in my hands rather that feeling castrated on the sidelines watching my savings sacked by pols, bureaucrats and the unscrupulous in the private sector that use the govt as a source for bailout money. Good luck to all…

    Best regards,

    T200

  12. Yes, if you plan on retiring in another country, it would probably be a good idea to hedge your currency risk then.

    I think of inflation as a different risk than dollar weakness. As long as I can still buy what I need with the dollar, I don’t care if it trade 3:1 with the Euro. There are other investments like inflation-protected bonds and regular ole’ equities that can deal with inflation.

  13. Trader200,

    Sorry if I came off as negative – didn’t mean to scare anyone. Short-term I actually think it’s wise to hold US dollars because the recession will result in cheaper products (ex. housing). Long-term is the problem I see and the China yuan trade seems interesting to me.

    As for gold, I hold some for an emergency. Of course, I do the same in US dollars. As for trading gold, short-term it’s going to drop like any other commodity. Yes, you can exchange it for dollars and that also applies for any commodity. Yet, in a recession commodities will be sold for dollars to shop @ Wal-Mart. Gold will hold its dollar value more so than other commodities though. Long-term gold and other commodities are going to appreciate in dollars thanks to the Fed.

    Good luck!

  14. Since I am retired in another country (Thailand) I should have been on top of this. But I sat back and left almost all my assets in the U.S. in dollars, confident that any fluctuations would be minor.

    Now I am looking at the weakest dollar in more than 20 years against the strongest Thai baht in 10 years. That double whammy has eroded 25% of my retirement nest egg in less than 2 years. And at a time where I am in the middle of a major project requiring substantial transfers of dollars to baht.

    Someone could have made out well if they had been buying Thai baht the last year. But I think it makes sense to open a bank account and convert large sums of money only if you are retiring in the country.

  15. Kevin Spring says:

    Investing in money is just like investing anywhere else. Buy low and sell high, but instead if you buy foreign currency now you are buying high. Don’t let your emotions control you, use common sense!

  16. American Consumers are Losing their Crown
    Peter Schiff
    “My forecast is that over the next two to three years the U.S. Dollar index will fall to 40; half of its current value. As this happens, much of America’s economic power will be transferred abroad. The chart below approximates current per capita U.S. dollar GDP for thirty nations, including the United States, listed in descending order.”

    “A 50% decline in the value of the dollar will simultaneously increase interest rates, consumer prices and unemployment in the United States, while causing stock and real estate prices to fall. Consumption, which accounts for better than 70% of U.S. GDP, should collapse as a result, producing a significant recession. My forecast is that U.S. GDP will contract by at least 20%.”
    http://www.321gold.com/editori.....91407.html

  17. i agree with most people, curencies are good but right now i dont see the dollar going substantially lower. Currency buying was good a year or two ago but for now I would just wait it out. Your not going to make much money vs the euro or pound unless ur day trading in considerable bulk. My guess is that if you bought on of those cds, you wouldn’t get much money out of it….

  18. As for opening a bank account in another country, it depends on the county. In the U.K. for instance you have to show proof of residency before you can open an account, in the form of an electrical bill, landline, etc. I’m not sure about the other European countries. If you really want to play with foreign currencies it seems like trading them through your broker as some of the above posters recommended is a more practical way to do this.

  19. I came across this fund, The Merk Hard Currency Fund (MERKX). I would be interested to know what you think about it. http://www.merkfund.com/

  20. Max: I have tens of thousands in the Merk Fund. It’s an excellent way to PRESERVE THE VALUE OF YOUR U.S. DOLLARS. I highly recommend it to everyone. You can buy into the Merk Fund on Schwab with no fees. I highly highly recommend it and have over and over on this site.

    Currency hedging is wealth-preservation, not profit-taking: you’re not trying to make money, you’re trying to preserve the value of your hard-earned U.S. dollars.

    It is blindingly obvious that the Fed and the your “conservative” Republican administration simply do not care about your U.S. dollar. Helicopter Ben can’t wait to turn up the printing presses to 11 to rescue his rich hedge-fund friends on Wall Street. And I’m a registered Republican saying this.

    The dollar index is definitely headed lower – to 70 or 65 – because China continues to tie their currency to ours. It’s an indirect way to punish the Chinese and back them into a corner. They MUST continue to create 25 million jobs a year and they simply cannot re-adjust their currency. They are slaves to our dollar. As such we will inflate our ways out of debt. And your dollar will suffer, although Chinese toothpaste and pet food will get cheaper and cheaper.

    It is the seventies all over again, although 10 times the size and ten times as ugly. Listen to one of the smartest men on the planet explain it:

    link

    He was on TV this morning (Tuesday 09/18):

    http://www.bloomberg.com/

  21. https://us.etrade.com/e/t/investingandtrading/globaltrading

    ETrade Global Trading, which debut only a couple months ago, allow seamless online stock and currency trading with 6 global markets (CA, FR, DE, HK, JP and GB) and 5 foreign currencies (CAD, EUR, GBP, HKD and JPY). Opening up a Global Trading account takes a few minutes online if you already have ETrade Stock account. I know you’ve had bad experience with ETrade in the past, something I’ve not had, but perhaps this is the opportunity to give them another shot?

  22. Hey Jonathan;

    The reply became it’s own blog post. Here’s a key excerpt.

    Jonathan: you said: As long as I can still buy what I need with the dollar, I don?t care if it trade 3:1 with the Euro.

    But this is what you’re missing, if the Euro goes 3:1 you won’t be able to buy what you need with your dollars. Your salary will go up 25%, but the cost of the iPod will double. Your food will be more expensive as foreign markets start buying your produce with the money you owe them.

    Yeah, yeah, this is happening right now on a small scale, we call it inflation. But you’ve just seen minor inflation, almost a side effect of the reserve banking system. Underneath all of this, the citizens of the US (whose very birth certificates back the money that is printed) are in debt to the world and they continue to live beyond their means. The US consumes more energy and gas than it can produce, while hinging its entire economy on those very resources. US labour is too expensive for all but the western european countries and manufactured goods are likewise too expensive. The only thing the US can “afford” to export is the food, but nobody else really needs the food at American prices.

    When the whole thing falls, then you’ll see real inflation, gas & food will suddenly cost twice as much but you won’t be making twice as much. Once it’s fallen, you won’t be able to “buy what you need with your dollars”, your purchasing power will be drastically reduced. This is the cost of globalization, the world is catching up and the US is at the top of the ladder, so the only place left to go is down.

    The US is the richest country in the world living a lifestyle on credit. Take all of these “credit card debt ruined my life” stories and scale that out to a whole country. That’s what going to happen to the US. We’re already seeing record foreclosures which means that people are being forced to sell their biggest asset/investment, in some cases their only real investment. People are skipping vacations to make extra money, they have their kids working at 16, then 15, then 13 & 12 just to keep up the pace. Elderly people are coming back to work greeter jobs at Wal-Mart and the workforce continues to churn harder and harder to keep up.

    These are not the signs of prosperity, prosperous people work less not more. These are the signs of a people stretched too thin and ready to pop.

  23. I can see inflation becoming a problem in the future, but I don’t see how investing in currencies in the best way to hedge against that possibility, which is the question here. It would seem that a diversified mix of international and TIPS would do a better job.

  24. Nothing glitters like gold. :)

  25. “It would seem that a diversified mix of international and TIPS would do a better job.” by Jonathan

    Well, TIPS won’t due the job. That adjusts to the CPI, which excludes energy and food – the two items most likely to increase the most. As for international investments, there are some US companies which are global (+50% of revenue/profits come from overseas).

  26. “Investing in money is just like investing anywhere else. Buy low and sell high, but instead if you buy foreign currency now you are buying high.”

    That’s true, but who told you that $USD is low now? Let’s wait and
    see what you going to say in 1 year when it will be trade at
    1:2 to EURO, that’s another 40% drop. There is no way out of this
    situation. Fed’s start cutting rates, they should continue to do so,
    which will lead to $USD sudden dead! Yes, games is over.

  27. Besides, when you buying another currency you just changing
    one paper (fiat) to the other. Buy real value. GOLD & SILVER
    the only money for 1000′s years

  28. “Besides, when you buying another currency you just changing
    one paper (fiat) to the other. Buy real value. GOLD & SILVER
    the only money for 1000?s years” by Mark

    Gold & silver would work if they were money in the US. Thus, industrial demand affects them greatly, but less so relative to other commodities. That’s why when the market dipped late August, the spot price of gold dropped as people sold it for US dollars. You’re better off, excluding hyperinflation or a depression, buying investment banker stocks because they receive the newly printed money first and get bailed out first by the Fed. For the risk averse I suggested paying the premium and buying some Chinese yuan, and hope they follow the Democrats? suggestion of letting the yuan rise.

  29. Instead of trying to hedge yourself by opening accounts in foreign countries, why not just invest in the FOREX market itself?

    There is 2 trillion a day trading there, so liquidity would not be a problem.

  30. “That?s why when the market dipped late August”

    Market dipped last August, because people run out of cash
    (margin calls)
    and they were liquidating anything to rise cash, but gold quickly
    rebound, because it’s all paper game. Game is over
    now, most of you will wake up when GOLD will go over $1000
    and Silver over $25 that be very short from now. Keep piling
    up your worthless Dollar.
    $USD=Canadian Dollar, what doesn’t mean to you?
    It means that Uncle Sam did 45% haircut to your total assets.
    Now Canadian can come over to US and buy a House 60% cheaper
    That’s exactly how much Canadian Dollar rise against $USD
    since 2002 (63%)

    Today USD it’s equal Canadian Dollar Value,
    Tomorrow, Australian Dollar, and next year, Mexican peso
    So?

    What’s in your valet???

  31. “Game is over now, most of you will wake up when GOLD will go over $1000 and Silver over $25 that be very short from now. Keep piling up you worthless Dollar.” by Mark

    Yes; fiat currencies eventually become worthless. The big problem is when. The Federal Reserve Note has been used since 1913 – that’s 94 years of waiting assuming it all ends this year. In the meantime, gold still hasn’t even topped the $830 record in 1982: even housing has been a better inflation hedge over the long-term.

  32. My French husband and I (American), both living in the U.S., plan to retire to France in 10 years, and at this time, 80% of our net worth is in U.S. Dollars (the rest in Euros). While it hurts to send U.S. Dollars to our French bank accounts with the Dollar buying .70?, I’m afraid to wait and find myself in 10 years with U.S. Dollars worth half that. Do any of you see ANY reason that the U.S. Dollar could rally against the Euro, or is it better to bite the bullet and send over a bunch of Dollars right now, before the Dollar drops any more? Of course, I’m kicking myself that I didn’t do so sooner, but better late than waiting even more. I do have about 35% of my U.S. Dollars invested in foreign stock funds, but even so . . . What do you think?

  33. Lauri,

    If you seriously plan on retiring in France I suggest you wait for 1-2 years. Expect a large amount of volatility. I don’t know your level of expertise, but I’ll explain the basis of my opinion.

    Every investor under the sun is betting against the US dollar, and the US stockmarket is near all time highs. In my opinion, the deflation in housing will spread throughout the US economy. The US stockmarket will then fall double-digit percentages. As these investors liquidate they will want US dollars. All else being equal, the exchange ratio is going to substantially reverse direction.

    In fact, the US dollar gained against all currencies (even the pegged Chinese yuan) during the momentary stockmarket fall in late August; check the charts for Euros, Yen, Pound, and Yuan. In essence, deflation is still coming and your US dollars are going to make a comeback, but not for the long-term. In the long-term the Fed will inflate to stop the recession.

  34. Dear Siggyboss,

    Thanks for your response. I agree with your analysis; the question is whether they will continue to raise interest rates in the Eurozone – the large disparity between U.S. and European interest rates could cause the Euro to make further gains. Even if the stockmarket falls, I wonder if Europe won’t still be a more attractive place for investors to look than the U.S., since the U.S. has many more problems (huge deficit, for one) than just the deflation in housing. My concern is also that, if there is a U.S. Dollar rally in 1-2 years as you predict, the value of the US Dollar will have fallen so much by then that the rally will only bring it back to current levels (or perhaps not even). Sounds like your long-term prediction (10 years or more) is a severely deflated Dollar, if I’m understanding correctly. Your thoughts on all this? (and others, please feel free to chime in).

  35. “Sounds like your long-term prediction (10 years or more) is a severely deflated Dollar, if I?m understanding correctly.” by Lauri

    I apologize for being unclear. In the short-term (1-2 years), I believe the US dollar is going to momentarily gain from deflation. In the long term (+2 years), I believe the US dollar is going to perpetually suffer from inflation.

    In terms of debt, I really don’t know the financial positions of non-US countries. If the world economy were to slow down, their generous socialist programs would soon create large deficits at a time of decreasing tax revenue. Governments tend to just print money rather than risk re-election; typical catalyst for hyperinflation.

  36. I see the reason for the confusion – you’re thinking like an American who is going to live in the U.S. (i.e., your Dollars will buy more in the U.S. in the short term, but less in the long term). I’m thinking like someone who makes money in Dollars, but is going to spend them in Europe. So I’m trying to figure out if this is the time to convert Dollars into Euros, before the exchange rate is so low that they become virtually worthless in Euros. Geomark, who commented earlier in this string, is in a similar position to mine.

  37. As a working college student with a little bit in savings I definitly look forward and see a very bleak future for the US dollar. I highly consider, and mind you, this is a long term consideration, I’m considering putting a decent amount of savings in the Yuan. I can only forsee the chinese economy bolstering. It’s already forecasted to surpass all other countries economically in the next 15 years.

    As for Gold and Silver, like many have already mentioned, it’s a safe bet. The problem with money is you can always print more, gold and silver holds value because you can’t make more, therefore the demand is always there, I hold lots of silver. I just hope America doesn’t go the route of Post WWI Germany and Print tons of money. I don’t ever want the unfortunate experience of standing in a wal-mart and looking back and forth between a fist full of dollars and a roll of Charmin.

  38. I will most likely buy a bunch of Yuan just because the Chinese economy is going to grow like an economic juggernaut over the next 15 years. I just hope America doesn’t go the rroute of post WWI Germany and print a ton of money. I never want the unfortunate experience of being in a wal-mart and looking back and forth between a fistful of dollars and a roll of Charmin and trying to convince myself that the Charmin would be more comfortable.

  39. sorry about flooding with comments, it didn’t show the one I had just posted so I posted a brief one after that.

  40. Hello, Interesting article. I am a 45 yr old Chilean-American citizen living in Chile at the moment. I sold my house before moving here hoping to buy a property in Santiago, but that hasnt happened. Believe it or not I still have my money in a money market account (I know I know! too many personal reasons) and with the dollar falling the way it is I dont know where to put it or what to do with it. Maybe buying Yan is smart. Any advice out there? I live half the year here and half the year in the states. Should I hold off in investing ?
    As you can see Im no economist so any constructive advice would help. thx

  41. I’m with the equity crowd. Concurrent with David Swensens “unconventional success” I think currency is a zero sum game because one countries currency appreciation is another countries inflation.
    Long term inflation protection is equity or real estate.
    So, treat ALL countries (including the US or Europe (for Lauri)) as equally foreign and invest accordingly.

    Personally I’d bet on Asia being the winner of the next recession and not needing us anymore after that so I’d put some more money into Asian equity/property than into the US or EU equity/property.

    In a structured portfolio (like equity, property, bonds) I’d also put in a bit of gold, like 5%, simply because it’s IMHO so unpredictable. It’s driven mainly psychologically and as such, it doesn’t correlate very much with anything over the long term. (Even inflationary correlation is affected by rising gold supply.)

    Lots of Greetings!
    Volker

  42. I have been nervous about the US economy and foreseable problems in the future, as cited in previous post by Gates VP and others. Remember the national debt is 9 trillion dollars and is going up daily; that pans out to a share of 30K for each of us, US citizens:

    http://www.brillig.com/debt_clock/

    So what I did 2 years ago was to park my money in foreign banks. Specifically, I use XEtrade Global Payments and Transfer:

    http://www.xe.com/

    to buy NZ dollars and put my money in CDs and saving account at Bank of NZ. Exchange rate was 1 $US = 66 cents $NZ. If I were to convert the money back to $US now, again using XETrade at the current exchange rate 1 $US = .75 $NZ, I would have already turned my original 100K into 113.6K, not counting the interest gain over the 2-year period, at 6.6% annually.

    RaboBank is currently paying 8.75% for 1-year CD, also in NZ. No account fee, no maintenance fee, 1K minimum, interest daily and paid annually:
    http://www.raboplus.co.nz/term.....esfees.asp

    I have used XEtrade and am happy with its services, fees as well as exchange rate. It’s better than EverBank.

    I have to put my faith in foreign banks since there is no FDIC there; and I am comfortable with the old and trusted name of RaboBank, a Dutch bank and Bank of NZ. However, interest rates will eventually go down in NZ.

    For the time being I simply am trying to PRESERVE THE WEALTH OF MY HARD-EARNED U.S. DOLLARS.

    Yes, I am working on moving to NZ because I think there will be a host of problems in the US that will surely affect not only its dollars but also its sustainability. It’s really scray to think about it.

    http://www.csa.com/discoverygu.....erview.php

    So yes, it makes sense to put your money into the country where you’re going to move to/and live.

    Jonathan, you and your wife should check out NZ, I think your lifestyle fits NZ perfectly well and I also think you both will gain residency as skilled worker in no time (as well as young//breeding age & good health). NZ is the gem of the Pacific and is an English-speaking country.

  43. moneyWise, you rock. Thanks to everyone that’s commented on this topic. I have been looking at Everbank, Nationwide, and HSBC and wanted to see if other people felt the way I did about trying to stash away cash in another currency since the climate really looks like we are headed for a hard recession/ adjustment/ chastisement … whatever. It was only after I researched to see how many huge companies very recently moved their corporate offices overseas that the light went on.

  44. New Zealand, eh? I’ll have to check that out :)

  45. I should ask moneywise that how you managed to open an account in NZ? I checked the RaboBank and they need an NZ address and IRD (tax number). Besides there would be tax withholding of at least 19% whih eats off the interest rate.
    The other issue is currency exchange! XEtrade has a wide spread. Check this out: The interbank rate today for USD/NZD is 1.2941. Now login to your account and try to buy NZD as a retail customer: I get 1.2380! That’s 561 pips or 4.5% off! Even Bak of America doesn’t do such a rip off! Everbank has an advertisement on its site about the exchange rate within 1%. Whether it is true, I don’t know.
    I’ll be glad to see anybody comments on this.

  46. It would be fun if you wrote something about the USD in 2008. When you wrote this blog entry on 9/16/2007, 1 USD = 1.39 Euro. Today (4/15/2008), the Euro is at 1.58, a 13.66% jump. Looks like the USD is going down in the long run.

    http://finance.yahoo.com/q/bc?s=EURUSD=X&t=1y

  47. # Mark Says:
    September 20th, 2007 at 12:22 pm

    “Besides, when you buying another currency you just changing
    one paper (fiat) to the other. Buy real value. GOLD & SILVER
    the only money for 1000’s years”

    You could be right, but what about when more gold ore is discovered and more gold is mined? Are these eventualities not possible, and won’t they produce inflation in gold against, say, natural gas?

  48. Jack: but what about when more gold ore is discovered and more gold is mined?

    That depends on the number of people around. If we had 100 bars of gold between 100 people and then we mined 2 bars of gold but gave birth to 20 people gold has effectively become more rare. Gold is very difficult metal to mine. It takes several years to set up new mines and the required equipment is expensive to make, operate and maintain. Barring a major breakthrough, it’s unlikely that we’ll be able to increase annual production by anything more than a few percentage points.

    Here are some neat links. Nuggets from that first link:
    Divided amongst the population of the world there are about 23 grams per person, about 1.2 cubic centimetres each.;
    Thus the world supply of above ground gold is increasing – or inflating – at just over 2% annually.

    As to the gold vs. say, natural gas, you’re actually asking a very difficult question b/c natural gas and oil are facing demand issues. Oil has been called “The Black Gold”, but oil is a very different beast as it’s meant to be consumed, whereas gold is most often used in hoarding. There are lots of outside factors that could make this equation “go either way”.

  49. I too would appreciate some up-to-date advise on the subject of hedging against inflation by converting dollars to foreign currencies. I’ve read that the big boys, such as Warren Buffet and Dick Cheney, are moving their investments out of those tied to the US dollar and into other investments tied to foreign currencies. If it’s good for them, one would think it would be good for the rest of us. Any suggestions for the average Joe? I’m not looking to get rich — though it would be nice! — but mainly, I just want to preserve the money I have and not watch it become devalued by inflation. But, I also don’t want to tie it up for long periods of time — I’d like to have access to it as I am also looking for a possible real estate investment. Any ideas or thoughts on the matter? I’d sure appreciate it. I’m a complete novice to all of these investment strategies and can use all the help and advice I can get. I’ve talked to three different financial advisors, and they all have very different approaches, so I’m still weighing all the info. and trying to make sense of it all. Thanks for your help!

  50. Rose,

    Everyting has a risk involved. It is a matter of weighing the realtive risks of losing much in US currency or potentially gaining a bit in foriegn currency. The worst that could happen by going foriegn is to lose a little and not a lot. My wife and I are putting our life’s savings in an Everbank multicurrency index fund. The “New World Energy” CD is guaranteed by FDIC, accepts IRA accounts, and pays 3.5% APR. It consists of 1/3 Canadian, 1/3 Australian, and 1/3 Norwegian currencies. When the CD’s mature they can be cashed in any world currency of your choice or rolled over. They are availabe in 3 and 6 months duration. We are laddering every three months. We are retired and have already lost 50% of our savings and income due to inflation. We see the only way to preserve what we have left is to get out now. If we were young we would immigrate to New Zealand. This country is going to become a nation of slave labor.

  51. Any of us who have dollars have to do something short-term and long-term. But if you are thinking of Everbank as part of the solution, and if you see a way to check that the bid-ask spreads you are actually getting from them tend close to what they are claiming, please let me know how one can check that. I haven’t found a way. The rates I’ve gotten on some trades through them are at http://spreadsheets.google.com.....i5x5vseJLg

  52. Estelle Edwards says:

    Anyone who has read Peter Schiff’s book [Crash Proof: How to Profit from the Coming Economic Collapse], which came out last year, should have some concerns about the devaluation of our currency. In my opinion, I don’t see why oridinary folks can just starting converting U.S. dollars into foreign currencies and simply hang onto them for the long term. It can be kept in a safe deposit box. If our currency tanks against all the others, people will come out ahead. Right now, one U.S. dollar buys anywhere from 107-109 Japanese yen. I would take advantage of those currencies where the rate of exchange still favors us immensely. That way, when the dollar crashes, there would be quite a few flush people after the debacle.

    Buy Peter Shciff’s book. Better yet, see if you can obtain it through your local library. This book does more to explain economics to the average person than all the misleading numbers coming from the government and the talking heads on those financial shows. It’s also a good idea to start buying gold!

  53. What is the limit on dollar amount I can transfer/wire
    from one U.S. Bank into a german Bank dollar account?

  54. To open your own foreign bank account (no intermediaries), in most cases, you have to go to the country in question to do it. In Italy for example, you’ll need to get a codice fiscale (sort of like a US SS number) before you can but most of the larger banks will open an account for a non-resident. Getting the codice is relatively simple and can be done on-line. Once you open the account you can then return to America and open an account with some entity such as AMEX international payments. They have a low mark-up on direct currecy conversion transfers and depending upon the limits of your foreign account, you can transfer as much money as you like by wire in the local currency. I would not be transferring large amounts at any one time so as not to set off some USG agency tripwire…

    To Gerhardt: It depends upon the limits of the account. AMEX has no limits that I know of.

  55. It depends upon the limits of the account.

  56. HSBC is very helpful in opening foreign bank accounts. There are fees but they are worth it to keep your money safe should the dollar slide. My sources are saying it will take a dip over the next 6 months and whatever dollars you have saved will be useless after this.
    To open an account all you need is: ID and fill out some paper work. It’s worth the trouble if you have $10,000 savings or more to worry about. If possible take a loan on your 401k and squirrel that away too. You can alway withdraw it and convert it back to dollars. No harm no foul.

  57. Jmajor, when you use HSBC to open a foreign bank account, does the currency trade happen through them, or do you get another firm to trade the currency and transfer the resulting foreign currency to your account through HSBC? If HSBC puts through the currency trade for your account, can you set a limit on the exchange rate that you will accept (like a limit order you can place to buy or sell stock)? If HSBC places the trade and you can’t put a limit on it, can you at least check afterward against some independent listing of currency rates that you didn’t get cheated on the exchange rate? In other words, does HSBC exhibit the same problem as Everbank as I complain about in my other posting above? I am not accusing Everbank of cheating (in fact I have received a personal assurance from one of their staff that they are not cheating), but I am alleging that their business model prevents a customer from checking whether she is being cheated. Their story is that the spot currency exchange rates fluctuate during any given day, and that they trade at some random time of day at the market rate at that moment, so, whatever rate I get, that must have been the spot rate at that moment. I can’t check that, because the published rates are for end of the day, or some statistical aggregate for the day (I’m not exactly sure whether it’s an extremum, a mean, a median, the start-of-day rate, the end-of-day rate, or exactly what, but for sure it isn’t a detailed listing of what the moment-by-moment rates were for that day, nor a listing of many trades that took place througout that day), so I can’t check that Everbank didn’t take a cut on the trade. In my history with them, I have placed three or four trades, and as the spreadsheet I publish shows, the rates I got don’t seem to correlate very favorably with the daily rates published by Oanda. So, my question is, is HSBC like this too, in their trading policy?

  58. I had my regular checking and savings at HSBC and since their motto is “We’re the Worlds Local Bank” I asked them about setting up foreign accounts. They can do it but charge a fee unless you have a “Premium Account”. I moved an old IRA into HSBC to qualify for this account (must have $100,000 in HSBC –not counting foreign accounts). I then had them open a Euro-based account on Jersey Island. The process merely involves forms to fill out and sent back. Processing takes several weeks. The account can be accessed online and eventually checkbooks arrived. I used their online system to transfer US$ from my old account to Euros in the other. For transfers less than US$30,000 there is no transfer fee (for Premium members) you just get the current exchange rate.
    Of course the day after I bought a bunch of euros, the dollar started rising against the euro and is now at a 2 year high. But this happens every time I do anything on the market: It reacts rapidly in the opposite direction. I should publish a market advice newsletter. Always do the opposite of what I publish in the newsletter and you will always make money! On the short term. On the long term I still think the dollar is going to drop again and this will turn out to be a good decision.
    Next I’m having HSBC create a Yuan account for me on mainland China. The forms are grinding through the mill. I’ll report back how it turns out.

  59. I have my Chinese Yuan account with HSBC now. There was a similar set of forms that had to be signed and mailed. There were delays and delays and miscommunications but it all worked out in the end. I can see all my accounts, US and international, on a single WEB page. I can transfer money between accounts online. (There are restrictions on taking money out of China, I must log into their account to do that). Some of the documentation says that I can get a checkbook for any type of HSBC Chinese account, other parts say you cannot. Some documentation says they are not allowed to issue ATM cards yet but are working on it, other parts say this is the only option allowed. For now I’m happy with on-line transfers, I’ll work on getting checks or cards later.

  60. Thinking money gives me trouble says:

    I’d really like to know what is the best option in a situation such as mine. i come from Botswana and $1 = P9 (nine Pula). I am going to go for studies in the US early next year (part of which i’ll be paying myself). Does it make more sense to keep the funds i’ll be using for schooling and subsistence in my local currency and convert later or keep it in US Dollars, or even in another currency? The Botswana Pula is pegged to the South African Rand, which is a weaker currency than our own. (R1~P1.20)

  61. I’m not going to presume to post a prediction about how the USD is going to do against the SAR. What I would do, in your position, “Thinking money gives me trouble”, is check what rates you’d get in the US against what you’d get in Botswana on the same day, whatever day you happen to check it. The rates may change over time, but most likely the spread between the rates you get in different countries will remain pretty steady. And I wouldn’t be surprised if that spread overwhelms the effect of fluctuations in the currencies against each other. So you might be better off bringing your Pula to the US and selling them for USD than buying USD in advance for Pula in Botswana. But again, i suggest you check numbers before you decide to act on such a prediction.

    Maybe a reader in the US who happens to be going by an international airport anyway in the next couple of days would care to check the rate at which a money changer there would pay USD for Pula and post back here?

  62. I know that this is the official rate, and not what you will actually pay at a money changer, but I like the charts at http://www.advfn.com/p.php?pid=forexqkchart These show up to 5 years of history of a currency.

  63. Swiss Frank says:

    Besides everbank.com wich is vertual bank I found brick and mortar bank wich ofers now foreign curency acounts:
    https://www.unionbank.com/commercial/products/Foreign_Exchange/foreign_currency/index.jsp
    And yes I think swiss frank is the best bet now. Gold and silver too, but gold is alredy too expensive, so maiby silver

  64. If one is fearful about setting up an overseas foreign currency account (e.g. fears of bank insolvency) there is a way to accomplish the same thing by buying a forward contract on the desired high yielding currency and keeping the majority of your money in a US FDIC insured bank.

    Log onto CurrencyAve.com to learn how to do this and the theories behind it

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