Tue 22nd May 2012
In this post I intend to answer the question: Which is the best currency to avoid the euro crisis? This might be helpful if you’re an expatriate or business owner, who currently has assets in euros, but is considering changing them to avoid exposure to the crisis in Europe.
This question can be answered in three parts:
1. The most obvious way to avoid exposure to the euro crisis is to move your assets out of Europe.
If you have a Spanish or French bank account for instance, consider moving those funds to the US or UK, which are both considered more stable alternatives. This has little to do with the currency, but the simple fact that if you have less money tied up in Europe, you’re less exposed to the crisis.
2. However, it’s important to note that the euro crisis has global implications.
If Greece defaults for instance, that could trigger a loss of confidence in Europe’s banks equivalent to 2008. In that sense, there is only so much you can do to limit your exposure to Europe. It’s too big to avoid.
3. There are certain currencies called safe havens, because they’re perceived to offer security in times of global economic doubt.
These include the US dollar and Japanese yen for instance, because these currencies have strong backbones built upon stable and reliable economies. In that sense, safe havens are perhaps a good place to put assets to avoid the euro crisis. But of course, they offer no guarantees.
That then is the basis of avoiding the euro crisis. However, let’s look at these points in more detail.
In a sense, looking for the best currency to avoid the euro crisis sounds a little odd. This is because, so long as you don’t have euros in your bank account (which could be turned into pesetas if you’re in Spain, or francs if you’re in France) there’s no risk of your currency suddenly disappearing if something happens in Europe. Instead, it makes more sense to think of avoiding the euro crisis in terms of investments.
If you’re concerned for instance that a crisis in Europe could affect banks in the UK, it doesn’t make sense to have assets and investments in pounds, because this leaves you exposed. Similarly, if you’re concerned that a euro crisis could affect the price of commodities, it doesn’t make sense to buy Australian or New Zealand dollars, which depend heavily on commodities for growth.
Instead, as I mention, currencies belonging to countries that provide relative stability, in spite of the euro crisis, are perhaps the best option. These include the USD and JPN, which (though not invulnerable) come from huge and widely diversified economies. These could be a better bet.
I hope this post has been useful.
If you have an questions not answered here, or would like to find out more, don’t hesitate to contact us at foreign exchange specialist Pure FX. One of our specialist dealers would be delighted to provide an in-depth response to your query, free of charge.