Considering Currency Devaluation

Chinese Currency Devaluation Equals Cheaper Chinese Goods to Americans – Not Necessarily A Good Thing

In marketing, repositioning is a strategy of reforming a brand or a service relative to competition.

When it comes to numbers, the Chinese know their position. (The concept of Chinese numerology dated back nearly 4000 years and is claimed to be one of the earliest forms.)

What can be more cunning is the Chinese also know how to reposition in the global market place. Even if it means they “set the cat among the pigeons”.

In a push for bolstering the world’s second-largest economy, China’s central bank devalued the renminbi, more popularly known as the yuan, by almost 2% alongside the US dollar. The left-field move was a global shocker across equity markets, marking the biggest plummet since China reformed its currency system in 2005 with an almost similar move.

Such intervention should power up the country’s exports overseas, making it more competitive in its effort to revive the slowing economy. Yes, it should make the country’s exports more competitive overseas, but analysts said it could rouse reactions and some ire in the US. Read through Donald Trump’s statement, “They’re destroying us. They keep devaluing their currency until they get it right. They’re doing a big cut in the yuan, and that’s going to be devastating for us.”

Whew! With the world on a financial crisis, 2015 is the year of unpegging currencies.

Surprise! The Swiss Change Their Mind and Unpeg From The Euro

Didn’t the Swiss unpeg their currency from the Euro earlier this year? Right away, the value surged by almost 30% against the euro and gained 25 percent against the dollar.

The downside is…didn’t it hurt many mortgage holders having swiss franc denominated loans? Swiss franc denominated mortgages are supported by property investors worldwide with the elite Chinese, Middle Eastern and Russian parking money in Switzerland indulging in second homes, with posh locations like Monaco.

{If your home currency is the euro or euro-based and you held a mortgage loan denominated in Swiss Francs, your debt payment jumped almost 18%}

For these mortgage holders, this revaluation struck panic switch to another currency. Gone were the days when the Swiss francs were the sweet haven investment.

In this time and age when financial stability gets shaken by the aftermath of world economic shockers such as currency devaluation and/or revaluation, more financial threats are expected to unfold.

IMF managing director Christine Lagarde quoted the following on looming growth inconsistencies: “Too many countries are still weighed down by the legacies of the financial crisis, including high debt and high unemployment. Too many companies and households keep cutting back on investment and consumption today because they are concerned about low growth in the future.”

In fact, the United States is the only major economy that is likely to buck the trend this year, while others are being held back – mainly by lackluster investment. A promising recovery continues in the UK, but growth remains very low in the Euro Area and Japan. And emerging economies, led by China, are slowing down, relatively speaking.

Overall, we believe that global growth is still too low, too brittle, and too lopsided.”

Truth is, it’s a dog-eat-dog world since the beginning of time. Competition is toughest as time flies faster. It is about preserving one country’s wealth over another. Economists and analysts know the unwritten, underlying reasons behind these events. Sad but true, self-interests tower over to preserve one’s riches. Because wealth amassed puts power at its peak. Thus, the crisis continues.

How can one survive wealth preservation amidst crises and chaos?

Consider currency diversification. As defined, it is using more than one currency as an investing or financing strategy to allow less risk in exchange rates as compared to a single foreign currency. Buying stocks that trade in different denominations like the U.S. dollars, British pounds, Japanese yen and euros. One employs a currency diversification strategy to reduce the risk involved.

Among the rich, London’s Rothschild Dynasty upholds currency diversification strategy.

Image Credit Monevator

See how the trust changes its exposure to various currencies from one year to another. This isn’t about trying to make money from currency fluctuations as it is about the preservation of wealth.

One doesn’t have to be super affluent to preserve one’s monies via this tool. As long as one has the means, the idea is to diversify, and it can be done easily with currency ETFs (exchange traded funds).

In a Fortune article written years back that still holds true now:

Among the world’s major currencies there are substantial moves for and against the dollar that give opportunities to augment value, and they are commonly disregarded.

There are other ways to invest in currencies. Among them are high-frequency trading strategies and currency hedges for long-term investors.

Indeed, there is more to currencies than meet the eye.