Why is it worth having your savings in a different currency?
Finance → Stocks, Bond & Forex
- Author Giorgi Mikhelidze
- Published November 16, 2020
- Word count 895
One of the most comprehensive ways of communication and connection has always been money and currency. Usually, those countries that had the same currencies were united or were allies. The tendency remains the same even in the 21st century and the fact that certain countries have similar currency still means that those countries have something in common.
While one of the universal languages can be English, one of the most universal currencies is USD. English is the commonly spoken language, used for communication by people to people, while the money currency is the way political entities, in this case, countries communicate and find common ground for negotiations.
USD is one of the most popular currencies, which is used in every single country, yet it is definitely not used as a primary currency in the majority of them. For this, we have the exchanges and the specific rates which are imposed for the exchanges between the currencies. Many countries have their own currencies and their own money, but in order to travel somewhere or trade with something, we most usually use USD and EUR. This is the most popular couple in the world.
The coin has two sides
Just like every physical coin has two sides, the existence of the different coins also has two sides. It is well known that the USD is the most used currency, for trading, measurement, for purchases and it is also one of the most stable currencies as it is strengthened by gold. Another example can be the EUR, which is also very common in Europe, as every member of the Eurozone uses EUR as their primary currency, meaning that despite living in Greece, you can still travel to Belgium and have the same money, without any need for the exchange.
USD/EUR is definitely one of the best-known currency couples, yet it does not mean that some other currencies are not more in value. A clear example can be the GBP or the Swiss Pound. Though there are some currencies that are way lower than the above-mentioned ones and thus, are lower in value as well. The difference between any currency is quite important especially for the country and its economy as well as for the ones who trade with the currencies.
The main importance of the currency exchange rates and the constant fluctuation is for the brokers and the forex market. The whole concept of the forex industry is based on trading with the differences in values and the possible changes in the values. It is mostly about the predictions, yet the kind of predictions, which follow a certain chain of tendencies, caused by the changes in the economy, inflation, depreciation, appreciation or etc. Traders of the forex market use every new change and possible outcomes for opening and closing their positions. The system is simple, if the currency pair changes accordingly to your prediction, you will be earning quite a decent amount of money, yet the market is extremely dynamic and even the smallest social, economic or political event can rotate the wheel.
The savings VS currency changes
We obviously work to earn a living, but we also work to make some savings for ourselves or for future generations. Some even might be saving money for the black day. And indeed in 2020, the black day has come, when we all heard about coronavirus, though the black day continues for a year already. Some smart people care about their possible darker days and have prepared for it, by saving the money.
Those people turned out to be smart, but some of them turned out to be even smarter. While people in different countries, rather than the US and eurozone, have income in their local currencies, they usually make their savings in the local currency straight away. Yet, as mentioned before, some smarter people converted the local currency to international currencies like USD or EUR. Another interesting fact to note is that during the global pandemic every single currency depreciated against the USD, meaning that the USD got even stronger on its positions. What does this mean? It means that people who made their savings in their local currency, actually lost a lot of money, compared to the amount of money they had, before the drastic changes in the exchange rates.
A very clear example can be Georgia, the country on the crossroad of Russia and Turkey and neighboring Armenia and Azerbaijan. The country has a local currency, Georgian Lari, aka GEL. It should be said that the currency was never outstanding with its strong position against the USD, yet currently, it has depreciated so much that 1 USD is almost twice as much GEL as it was only 5 years ago. This means that people who made their savings in the local currency have basically lost twice as much money as they could have saved, if they converted everything to the USD or EUR currency, once they had a better rate.
The global inflation is still going on, and the USD is strengthening its positions against every other single currency, leaving all of the rest with a guess whether the currencies survive the dollarization or shall soon lose the value at all. One way or another, this is a good lesson for those people who are still thinking of the savings, yet do not rely on the most stable indexes.
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