Ask the Expert: Protecting against a collapse of the U.S. dollar
August 05, 2010
Q: How do I protect my savings if the dollar collapses in the United States? Nobody is willing to answer this for me--I hope you can. Thank you.
A: Perhaps the reason people have trouble answering this question for you is that there is no complete answer. The U.S. dollar is the world's leading reserve currency, and major world economies depend greatly on exports to the U.S. So, if the U.S. dollar really did collapse, then to some extent there would be no place to hide financially. However, while it would be difficult to eliminate your exposure to the U.S. dollar, there are some things you can do to somewhat mitigate that risk through diversification.
For example, consider investing some of your savings in commodities. Global commodities like oil and gold are primarily denominated in dollars, so if the value of the dollar went down, the prices of these commodities would be likely to rise. Don't go overboard, because commodities are themselves subject to substantial risks, but some investment in commodities would not be out of place for diversification purposes.
Another appropriate diversification move might be to make some investments in securities denominated in currencies other than the U.S. dollar.
If the U.S. dollar did collapse, a likely result would be high inflation. You might see savings account and money market rates rise as well, but they'd have trouble keeping up with inflation. U.S. bonds, meanwhile, would be a disaster. In other words, even what are considered safe investments would struggle if the dollar collapsed. So the best you can do is make sure you are well diversified--and beyond that, hope this worst-case scenario never happens.
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