What currency should you invest in?
The Rand's woes aside, which currency is best to hold your hard earned money in? The Euro has been volatile thanks to problems surrounding Greece but the currency has recently been buoyed after an agreement was reached to end Ukraine's ten month war this week. But are US dollars or the British pound that much better?
According to First National Bank (FNB) economist Alex Smith, deciding which currency is the best to hold your money in depends on your investment objectives and time horizon. However, he believes the US dollar is a good option.
"The central bank there [in the US] is likely to begin hiking interest rates soon, while most other developed countries are cutting interest rates and increasing monetary stimulus. The US economy is also growing quite fast, and as such is expected to attract a lot of capital inflows over the coming months, which is likely to boost its currency," added Smith.
Smith is still suspicious over the Euro. He believes that until the issues with Greece and the Eurozone have been fully resolved it would be best not to invest financially in the Euro, because if Greece were to leave the Eurozone this could have an impact on the worth of Euro.
In the digital age, there are alternatives to investing in traditional forms of currency. Cryptocurrencies are digital currencies and this 'money' is stored on your computer in a digital format. There are a variety of different cryptocurrencies available, such as Bitcoin and Peercoin.
The advantage to investing in this currency is that it is internationally accepted, meaning that you buy the online currency, and can use it to pay transactions anywhere in the world. The rewards for investing in these types of currencies can be huge if the worth of the 'currency' increases.
However, there are plenty of disadvantages to investing in this type of currency too. The potential for loss is quite high if the 'currency' that you have invested in collapses. As these are not registered or regulated with financial institutions there is no comeback if you lose your money.
For someone willing to take a risk with their investments this might be the way to go. However, Smith suggests that investors stay away from cryptocurrencies as they are "extremely volatile and are highly speculative."
Smith believes that even though we live in a digital age where online trade is quite common, maintaining a global currency, such as a cryptocurrency would not be possible.
"[Different] countries need different currencies. This is because a currency is reflective of economic fundamentals and currency moves help to act as shock absorbers in times of difficulty. For example, if a country is struggling to export goods, its currency would weaken, which makes its goods cheaper to purchase and thereby boosts its exports. One currency would remove this 'shock absorber' possibility as it has done in Europe with negative effects."
For more information on cryptocurrency, click here.
*Figures accurate at close of trade on Wednesday 11 February
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