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Thanks to all the uproar lately diversification becomes more and more important for me. While I am diversified re brokers/banks over several countries/jurisdictions 80% of my assets are held in USD, with only 10% each in EUR/NZD each. With less trust now in a longterm strong USD I am thinking about more currency diversification for which it might be a perfect time as against the USD all else currently are extremely weak. Mostly living in Germany I naturally should think "Euro", but I don't, because of geopolitical unrest and potential for more to come (read: Putin). There are 2 decisive factors re the decision what currencies to buy for my liquid USD:

A) Looking at exchange rates I am very tempted by NZD + AUD + JPY, as all 3 are historically low against the USD, especially the 3 last ones = perfect time to sell USD and to buy those currencies.

B) Interest rates: How much % do I get in which currency? I simply looked at IBKR, as I have an account with them, so could easily exchange my USD cash I have with them into NZD/AUD/JPY. Result: JPY with 0% at IBKR is not interesting any more. Similar for NZD with 1.3% and EUR with 2%, especially because I already have 10% in each and get far more for that.

That leaves AUD with 4% at IBKR, which hugely surprised me as NZD and AUD longterm move more or less in tandem, usually with the NZD a bit weaker, but offering higher interest rates. I am therefore completely baffled by IBKR offering 4% for holding AUD but only 1.3% for NZD (btw IN New Zealand I get 4% for NZD term deposit).

So it seems to be a non-brainer: Converting my USD cash at IBKR in AUD, thereby getting great interest + currently many weak Aussi Dollars + having diversified into an additional currency.

What may I miss here?

What may I miss here?
AUD can go down more? More than USD I mean.
The only "safe" currency is CHF.

Right, but 0% interest at IBKR (as Yen).

AUD can go down more? More than USD I mean.
Goal of my diversification is hedging against an eventually falling USD which as as strong as "never" before, but with me doubting ever more (thanks to politics) this remains. In that case everything else would become relatively stronger.

The only potential problem I am seeing this moment is that it wouldn't be diversification with respect to broker and jurisdiction, contrary to my NZD/EUR which are held by local banks in those countries.

Anything else coning to mind?

Couple of thoughts

I wouldn't say the CHF is the only truly safe currency. One potential inconvenience is that, because it is SEEN that way, the level and interest rates are often being "wagged" by the international currency market demands. There is also the issue of what would happen if UBP blew up, as I think their balance sheet is bigger than Swiss GDP.

So, NOK is an alternative to consider. The Norwegian Krone might move up an down a bit more (or not), but one certainly couldn't argue that it isn't a safe currency...the Norwegian government is not exactly broke. Their historical problem has been what to do with all the money, so the sovereign wealth fund owns on average 1.5% of every listed company in the world. The interest rate isn't bad, either.

Personally I put a fair bit of money into sterling. The interest rate is currently excellent (though I don't expect that to last), and the currency has been doing better than some of the UK economy might lead you to expect. In trade weighted terms, the pound has been rising slowly and steadily for 8 years now. Admittedly I do have some expenses in pounds, so it makes a tiny bit more sense for me than for some others.

Another thought: don't pick based on interest rate, pick based on quality as a store of value, which might mean a mix. ("always minimize maximum regret"). Remember the maxim never to reach for yield, and it applies here to a certain extent.

If the currency you pick doesn't offer a good yield, there are ways to "create" a yield with a bit of work. e.g., at Interactive Brokers (and I assume many other place) you can use cash in one currency as security for US dollar derivatives. Say you'd like to pick up Berkshire at 1.35 times book...would repeatedly written puts at a low strike, backed by cash in a safe currency, give you the yield you want? If your puts get exercised you will (briefly) be given a USD loan to cover the shares you were just forced to purchase at a great deal. The next day, do the FX to convert your "safety" currency to USD, and you own some stock with a nice entry. It's not really income, in that you are also making a decision to conditionally purchase a stock, but it doesn't take much return to make a low interest rate into a pretty good one in the mean time. Random example from yesterday, admittedly an unusually fantastic day to start this, a June $415 put would probably get you a premium of $6.75, which is a return of 1.65% on the capital committed, which is 8.9%/year to add to whatever rate your cash pile is earning, or an entry at 1.356 times current book. A September put at $400 would get you a premium of $8.10 for an entry price of 1.30 times current known book, or a rate on cash committed of 4.7%/year, again added to the interest rate you're earning on the cash.

Jim

What may I miss here?

You touched on this in a later post, but on the higher risk part of the spectrum, the possibility of currency / asset flow controls being imposed on US financial institutions is IMO very high as the USG proceeds with destroying as much of "the economy" as it can get away with while alienating everyone else on the planet except, perhaps, Netanyahu. Having AUD in an IBKR account would make little difference if IBKR is forced to prevent people from moving assets out of their accounts unless Australia kowtows to the latest extortion demands placed on it.

Personally I'm looking to put at least 10 years' living expenses into EU bank accounts before leaving for Portugal in a few weeks. Hopefully can find something better to do than leave it as dead money in a bank account, once I can learn something about EU investment options, but just *having* the money available and outside the whim of the US Treasury and State Department feels very important to me given that I'm committing my future to the EU, anyway. And selling off a significant fraction of BRK now is better than paying 28% capital gains taxes in PT later.

I just converted USD at IBKR into GBP (no AUD as I have enough NZD and both are moving in sync, so GBP is more diversification).

Thank you both!


P.S.: The diversification giving me real peace of mind would be to finally decide where in the world I want to live, and to convert cash into real estate => buying a decent house instead of my current shed.

I'm learning about this stuff, haven't thought much about currency in regards to investments before (am U.S. based), so pls bear with me.

Norwegian Krone bond yield looks good: 3 month and 6 month about 4.4%

A quick search shows the Krone depreciating against the dollar by about 14.5% over past 5 years, similarly about 6.3% against the euro. Krone fairly sensitive to North sea oil prices, oil being the main generator of Norway's wealth.

Norwegian bonds might be great if you mainly transact in that currency, e.g. live/invest there, but would need to consider the trend against dollar or euro if you live in U.S. or EU and just hold funds in bonds denominated in NOK. Same for holding NOK.
No?

I like the 'generate yield' with low strike BRK puts idea. With China tariffs kicking in, put premia will probably be increasing even more soon.

Norwegian bonds might be great if you mainly transact in that currency, e.g. live/invest there, but would need to consider the trend against dollar or euro if you live in U.S. or EU and just hold funds in bonds denominated in NOK. Same for holding NOK.

The above seems to imply that you are afraid to loose money by NOK continuing it's trend to fall against the USD. If so I see no point in investing in NOK 4.4% bonds instead of US treasuries with similar returns.

My motivation is not higher rates than with USD (not much lower ones is good enough for me) but to hedge against a currently super-strong USD eventually falling from grace and against those other currencies, of the USD becoming again the 30%-70% lower against EUR/NZD/AUS/GBP/NOK it had been since 2005.

So what I am afraid of and is my motivation to diversify away from the USD is actually the opposite of what you are afraid of.

Personally I put a fair bit of money into sterling. The interest rate is currently excellent (though I don't expect that to last), and the currency has been doing better than some of the UK economy might lead you to expect

Jim, after you pointed to GBP (and NOK) I exchanged USD into GBP. The last days every single day GBP did fall against the USD, while EUR and NZD every day did rise. Do you have a thought why that might be so?

Sorry, the previous was one of my "too fast" posts. Since I bought GBP it's NOT falling against the USD, it's falling only against the EUR. I have to be more thorough before posting, sorry.

I posted this on the "Living Abroad" board, but since it's a topic here, please permit me to re-post it here:

For the foreseeable future, DW and I (US citizens) are considering spending a good chunk of each year in France, most likely renting for 3 to 6 months at a time and perhaps buying a place later on. The rapid rise in the Euro relative to the USD has prompted me to consider something I know virtually nothing about: how to hedge against a weakening dollar relative to the Euro.

I do not want to get into currency speculation. I want a solution to my (potential) problem that is simple, low risk, and will work easily for sums in, say, the $10K to $100K range.

Is the solution as simple as purchasing FXE in my Schwab account?

Thanks

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