Quality currencies?

[LazyInvestor]

If you were forced to diversify your cash holdings from USD, which currencies you would choose?

Also, what is your opinion about pegged currencies? For example, many seem to consider HKD a solid currency which happens to be pegged to USD. Maybe owning HKD as part of the cash holdings might be useful since in the case of USD weakening they would probably depeg HKD from USD thus providing some additional protection, right?

[MachineGhost]

Also, what is your opinion about pegged currencies? For example, many seem to consider HKD a solid currency which happens to be pegged to USD. Maybe owning HKD as part of the cash holdings might be useful since in the case of USD weakening they would probably depeg HKD from USD thus providing some additional protection, right?

Pegs and currency control boards never work in the long-term.  So its an interesting speculation, but the currency can just as easily go south as north.  Keep an eye on the Hong Kong government's debt and spending.

[Kshartle]

I would think the currencies that are devaluing to maintain pegs have the same downside and much more upside than that which they're pegged to.

EX-if the Chinese broke the Yuan/dollar peg we know what would happen. They are buying dollars to maintain the rate. When they decide the buying is no longer in their interest the yuan will rise.

Same with the Swissy and Euro. I can't imagine why anyone would hold Euros right now. If you're going to do that you might as well hold Francs. The fundamentals are sceraming for Francs to go up and the Swiss are taking unprecedented measures to keep it down. Eventually the interference will come to an end and if it doesn't you're at least in the same position as if you were holding Euros.

To reduce risk I'd hold Aussies, Kiwis, Renmimbi, Francs, Kronas, Krones, and Yen (now that you can buy 95 of them for a buck).

The Yen is a long shot I know because they have vowed to destroy it. I don't think they'll be able to hang with Benny though and it looks like it's found major support around 95. There are lot's of Yen shorts and carry trades to unwind. How many more can possibly get put on?

[Kshartle]

The price of oil has been rising in dollars, it's been surging through the roof in the land of the rising sun. Gold looks lackluster here but I think it's an all-time high over there. I can't imagine how they are going to keep a lid on interest rates. The BoJ is going to be buying up so many JGBs the FED is going to find itself increasingly the only player in the market for new treasury issues.

Currency war...the only war in which the object is to kill yourself.

[AgAuMoney]

CAD and AUD

Both resource-based currencies in countries with a tradition of the rule of law.  Not perfect (is there such a place?) but both large enough and stable enough to add safety instead of reducing it.

[dualstow]

I guess I would diversify into Swiss Francs but I'm certainly not buying them in real life.

[Ad Orientem]

If you wanted to speculate in currencies I would look at AUD NZD CAD NOK SEK and yes the much maligned Swiss Franc. You could also take a look at the holdings in TGBAX which is a global government bond that has had an unusually successful track record over the last ten years.

Disclaimer: I do not engage in or endorse currency speculation.

[AgAuMoney]

I won't consider the swiss franc any longer, since they have pegged it to the Euro.

[Kshartle]

I won't consider the swiss franc any longer, since they have pegged it to the Euro.

The fundamentals support a higher Franc if they ever un-peg though. I think it's currently underpriced. That's why I would consider it in a basket but not the Euro.

[Ad Orientem]

I won't consider the swiss franc any longer, since they have pegged it to the Euro.

The fundamentals support a higher Franc if they ever un-peg though. I think it's currently underpriced. That's why I would consider it in a basket but not the Euro.

I completely agree. The Franc is being artificially depressed below its fair market value. Switzerland is one of the few countries in Europe that is in very good fiscal and monetary health. The peg to the Euro is smoke and mirrors. If/when the Euro finally goes under the Franc will be one of the strongest currencies in Europe. Swiss Government Bonds have yields that are competitive with German bonds right now.

[China Bull]

If you were forced to diversify your cash holdings from USD, which currencies you would choose?

Also, what is your opinion about pegged currencies? For example, many seem to consider HKD a solid currency which happens to be pegged to USD. Maybe owning HKD as part of the cash holdings might be useful since in the case of USD weakening they would probably depeg HKD from USD thus providing some additional protection, right?

I have to chuckle, not sarcastically, at the comment of being "forced to diversify cash holding from the USD". Even though i am an American (mind you,  I have lived outside the US for close to 30 yrs. now and i don't see myself spending more than 50% of my drawn down assets in USD until I'm probably on my death bed), i would be absolutely petrified if i was "forced" to have my cash holdings in only US dollars. I think you would do well to hold 30-60% of your liquid cash/cash equivalents outside of the USD (this not even including your equities or LT govt. bond portions of the PP), depending on a number of factors. This is just being prudent and acknowledging that the USD is going to gradually (or perhaps w a loud thud!) continue to lose its role as the sole reserve currency. So if the USD is no longer the slam dunk, then what is ? You have to look and grade at the following for each possible currency - economic fundamentals, local interest rates and central bank direction. Hard to find one country currency with all of these but if you had to rank them I would rate the Norwegian Krone, Aussie Dollar, Canadian Dollar (commodity driven, all w their own pro/cons)  as top choices and then if you want to add a bit more diversity I would add Singapore Dollar and Hong Kong Dollar.

I think the Hong Kong dollar is in a rather unique, chameleon-like position being pegged to the USD but much more dependent on the fortunes of China. Although i live right on the border of China and Hong Kong, i can tell you that a huge majority of the people in Hong Kong do not favor the peg of HKD to USD any longer. Even though politicians in HKG repeatedly say they will not float the currency, that just tells me they eventually will or make it convertible to the RMB (likely to occur once the RMB becomes more globally tradable) . Until that time, what i like about the HKD among a number of things is that it will rise and fall with dollar so you would be no worse off by holding it but you have the real possibility of it appreciating significantly in the future when it is floated or tied to a basket of currencies. it's a bit like "heads I win, tails i don't lose".