Safe-Haven Currencies: If You Want to Flee the U.S. Dollar, Here Are Four Places to Hide

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As a young British banker in the inflation-ridden 1970s, I got used to carrying large amounts of German deutsche marks, Swiss francs and Japanese yen in my wallet – to have some security against the lousy performance of the British pound sterling.

While paying for a pizza in London with this foreign cash was difficult, having those "safe-haven" currencies in hand helped me sleep at night.

We've reached that point again. In light of the escalating debt-ceiling debacle that's unfolded in Washington, the potential for a U.S. credit-rating downgrade no matter the outcome, and the likelihood that a long stretch of dollar-killing stagflation is headed our way, it's time to take refuge in today's safe-haven currencies.

And I'm going to show you the safest of those safe havens.

The Battle-Damaged Greenback

I know that many of you are extremely worried about what will happen if Standard & Poor's downgrades U.S. Treasury debt from its top-tier AAA credit rating.

But I'm telling you that there's a much bigger cause for concern. While I concede that having our federal debt lose its top-tier credit rating wouldn't be good, the bigger cause for concern is what happens to us if the U.S. dollar stops being regarded as AAA – meaning it's no longer good for settlement of all international transactions.

If that happens, you have to ask yourself two questions:

  • What would be the impact on the U.S. and world economies?
  • And, even more importantly, what would investors like us need to do?

The answer to the first question is clear: The fallout will be worse than you imagine. And that means that, even now, you need to be searching for refuge in the very best of the world's safe-haven currencies.

With the Aug. 2 deadline for raising the debt ceiling approaching fast, the U.S. dollar took another beating and fell against safe-haven currencies yesterday (Monday), after Washington failed to reach agreement on the nation's $14.3 trillion debt ceiling. The Swiss franc actually reached an all-time high against the dollar, which has slipped 25% against that currency in just the last 12 months.

What a lot of folks don't realize is that the fate of the U.S. dollar is closely tied to that of U.S. Treasury bonds. If U.S. inflation takes off to serious levels – as I'm almost certain it will – both Treasuries (except Treasury Inflation Protected Securities, or TIPS, which are inflation-protected) and the dollar will tank simultaneously.

After all, the United States has been running balance-of-payments deficits of $500 billion or more for almost a decade now – much longer than the country has been running $500 billion budget deficits.

The dollar is also almost certain to drop if the vast U.S. budget deficit causes a crisis in the Treasury bond market. Finally, the advent of modern communications technology has made global manufacturing much easier, lowering the market premium of U.S. wage levels above emerging-market-wage levels (that's one reason unemployment has been so stubbornly high this time around). The easiest way for these wage levels to be equalized again, necessary for U.S. unemployment to fall, is for the dollar to decline sharply against emerging-market currencies.

For these reasons, we can expect the dollar to be generally weak against other currencies. That will unsettle international traders who receive payments in dollars. They will look to get paid for their goods and services in other "safe-haven" currencies.

The challenge, of course, is to determine exactly which safe-haven currencies we're talking about …

The answers will surprise you.

The Four Real "Safe-Haven" Currencies

So if we're searching for safe-haven currencies, which ones should we look at?

The European euro? That won't do – there's too much of a chance of it splitting in two. That would be either good or bad – good if the weak-sister PIIGS of Portugal, Ireland, Italy, Greece and Spain split off to form their own weak bloc (leaving the euro strong), or bad if Germany and a few stronger countries split off (leaving only the weaker currencies in the euro). Either way, the euro is a risk, and a big one: After a split, the currencies would probably shift by 20% to 30% against each other, to give the weaker countries a chance of exporting their way out of problems.

The British pound sterling? What a very sweet, old-fashioned idea. If this were 1911 – or, better still, 1821 – this would be the ideal safe haven. But it's 2011, and Britain has all the same problems as the United States – only to a greater degree.

The Japanese yen? Japan has a much worse debt problem than the United States, and only the fact that Japan owes all that money to itself is keeping the Japan Government Bond (JGB) market stable.

The Chinese renminbi? A fashionable solution, but the reality is that China still won't let its own citizens get their money out freely. What's more, there is a huge glop of bad debts in the Chinese banking system that at some stage will cause big problems – so big, in fact, that the 2008 financial-system crash and collapse of Lehman Brothers Holdings (PINK: LEHMQ) will seem like a springtime stroll.

Such afterthoughts as the Brazilian real, Australian dollar or Canadian dollar? While I'll grant you that Canada is much-better run than the United States, the ugly truth is that Brazil and Australia are no better run than any other country. In fact, all three of these countries had the great fortune to be heavily dependent on commodities at a time when commodity prices happened to soar.

If commodity prices decline, the innate problems facing each of these currencies' problems will become painfully apparent.

As our trip around the world

There are thus very few safe-haven currencies for you to invest in.

There are actually four clear winners:

  • The Swiss franc: Switzerland is the ideal European country – chiefly because it has a large-but-safe banking system. The Swiss National Bank made UBS AG (NYSE: UBS) and Credit Suisse Group AG (NYSE ADR: CS) recapitalize themselves properly and have forced the two to do more wealth management and less investment banking.
  • The Norwegian crown: Norway has oil, a large trust fund and no European Union membership. That trust fund (actually a very-well-managed, $570 billion sovereign wealth fund) makes this one ideal – even if oil prices collapse.
  • The Singapore dollar: This is a beautifully run country – the least corrupt in the world, in fact – and is a banking-and-trading entrepôt, to boot.
  • The Chilean peso: Yes, I'm recommending a South American currency as a safe-haven currency – my 1970s global-merchant banking colleagues would recoil in horror. All the same, Chile is less corrupt than the United States. It has a commodity economy, but is better run than Australia (and less likely to be under cut by cheaper labor, since Chilean labor is still quite cheap). And it has a trust fund (sovereign wealth fund) to guard against a return of low commodity prices.

Moves to Make Now

Even when you know what currencies you want to be in, buying them is not all that easy. Generally, the currencies themselves can be bought at any major commercial bank, although you may get killed on the rate. However, this will give you a pile of paper money with no yield and a danger of being eaten by mice.

A better alternative is to buy bank deposits. Here our friends EverBank can help you; it offers a bank-deposit service in a wide range of foreign currencies. Three of our four currencies are on EverBank's list; you can open accounts in Norwegian crowns, Singapore dollars and Swiss francs – but not in Chilean pesos.

Foreign-currency bonds are another alternative, although not all brokerages allow you to buy them. The difficulty here is the minimum amounts are generally large, and there is a substantial bid-offer spread. Still, this is probably your best alternative for Chilean pesos, where the government is currently rated AA for Chilean-peso obligations and 10-year peso government bonds yield about 2.4%.

Safe-haven currencies gave me such a sense of security when I turned to them during the economically tumultuous 1970s that I still can recall the feeling today – nearly 40 years later; now it's time for you to seek out that kind of security.

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Join the conversation. Click here to jump to comments…

  1. Don. Chauncey M. Freeman | July 26, 2011

    Just to say THANK YOU. In a ever growing UNSURE World it gives me great pleasure to have read you article on SAFE CURRENCIES. I am soon to come into a sizable inheritance and had wondered just where I could somewhat feel safe. The SWISS FRANC seems to me a good place to be, as I live in Spain. I am wondering however if it is still possible to maintain a Numbered Banking Account. Sadly my Government, the United States Government is no more than a bunch of thieves. Senators, Congressmen, all vote their own pay raises, retire with full pay, and God knows what else, yet when a common citizen inherits an amount of money there these thieves are with their hand stuck out saying give it to us. Horse manure I say. If there be a place where I can hide it then I certainly will. Anyone knowing where I can safely keep my money, a sizable amount, please email me the information. My Email is at:
    Thanking You In Christ Jesus
    Chauncey M. Freeman
    United States Navy Retired

  2. Philip Boylan | July 26, 2011

    An excellent overview. Even without the benefit of a view from the Shuttle, this piece by Martin Hutchinson brings home, in simple terms, the volatility and unpredictable shifts of the world scene.
    There are so many known / unknown forces at work, that it is now like the song goes at
    Christmas-time … "You'd better watch out, etc." On an hourly basis!

  3. Werner | July 26, 2011

    Martin,
    I can only approve of your analysis, it is well founded and correct.
    As it happens I started my professional carreer at a forex trading desk in 1970 and thus lived through the whole story of the Dollars way to the abyss. I was and still am a Swiss resident and citizen, saw the dollar trading at CHF 4.30 roughly at the early stage, see it now at 0.8025 (whilst I am writing).
    I made a lot of money being long of dollars though during Paul Volckers tenure, selling the CHF and other non US currencies. But to come to your recommendation – whilst I think its still valid – the last really good chance to get cheap good currencies like the CHF was in 2001 and possibly 2002. I am afraid you are not the only one having forgotten than opportunity. Not many people took advantage of it.
    As far as I am concerned, I did not trust the USD for ages, just because of all it's deficit problems that had never been solved and after that run up of the Dollar in the early 80ies, I nvever worked on a long USD position anymore. I have missed intermediate rises, obviously, but am quite happy living in my home currency!

  4. marlene | July 26, 2011

    THANK YOU FOR THE INFORMATION ….

  5. marleneperkal | July 26, 2011

    very important information for the record …

  6. kpk38@charter.net | July 26, 2011

    for your records …curve

  7. A. Mulvany | July 26, 2011

    Dear Mr Freeman,

    If you feel your inheritance would be safer in Switzerland in a numbered account, you'd best take a holiday in Europe & go via Switzerland & stop by a branch of Credit Suisse to make enquiries.

    Good luck, a well wisher.

  8. jonas | July 26, 2011

    I agree,
    but what about the
    Swedish Krona. Great export cars steel etc etc, non euro. Stable neutral country.
    Canadian Dollar seems to be a pretty safe bet, no?

    what are thoughts on Mexican Peso?

  9. Patrick Pomeroy | July 26, 2011

    Why not the Canadian Dollar?

  10. Mike Smith | July 26, 2011

    Unit trust companies in Hong Kong.
    Big expensive offices with unhelpful ignorant staff.
    This reflects on the parent companies in US.
    Avoid unit trusts and make your own investments.
    Well I guess most of us knew that already. Some of us, ,such as yours truly, only learn this through their own exxperience .

  11. bobby | July 26, 2011

    why not the canadian dollar?

  12. Bruce Herman | July 26, 2011

    Might it be possible to locate the stock exchange symbols for the safe haven currency ETF's ?

  13. Morgan Mooney | July 26, 2011

    What a terribly "British" view of the world! And of course, like all British economic thinking these days, extremely biased. And nowhere is this more evident than in Mr. Hutchinsons slightly hysterical attitude towards the Euro. Since its introduction the Euro has been under sustained assault from the British media and very much helped in recent years by a legion of British newspapers owned by none other than the great media mogul Rupert Murdoch. The British media and unfortunately your correspondent continue these rants purely on the basis of the old hatred of Germany and France. English media has a fascination with the rise of the Euro which is peculiar only to them(for historical reasons) and unfortunately it greatly clouds their judgement. The British Press forecast the demise of the Euro on a daily basis but in spite of this the Euro zone has cotinued to prosper and expand. The new Euro zone countries have had lots of growth also over the past few years but this correspondent chooses to ignore this. The Euro will survive and prosper and your readers should dispassionately look at the facts before coming to a conclusion.

  14. Robert PMO | July 26, 2011

    I think the Canadian dollar is safe too as long as the Conservatives are in control.

  15. GrandestR000 | July 26, 2011

    Now the real dithering begins on gold (and Swiss francs and other "havens"). I've been trying to figure the coming trend for gold for some time, and while it's fairly easy to read the fundamentals – at the moment – the technicals are sparking off mixed messages. Been using this to get a grip -

  16. azad | July 26, 2011

    Libyan dinars the best option.

  17. Nick | July 26, 2011

    I would rather own physical gold and silver over any paper money.

  18. Nelson finstad | July 26, 2011

    Wow, you wrote basically the same thing that Simon Black of Sovereign Man wrote several days ago–and I've yet to hear anyone other than him mention the Chilean peso. You even listed your currencies in precisely the same order as he did.

    Now, you didn't simply lift his advice an recycle it, did you?

  19. Brian Coogan | July 27, 2011

    Your knowledge of the foundations underpinning Australia's strong and stable economy is weak and misleading.
    It remains one of the safest countries on the planet to invest and reside. In contrast to the clowns masquerading as bankers at the Federal Reserve, the central Reserve Bank of Australia is managed by eminently qualified bankers of integrity.

  20. C. Golds | July 27, 2011

    Thanks for this important information … and although I am not Norwegian but am enjoying my country's safe haven, I would also highly recommend the Norwegian Crown at the top of the list … an incredibly well run country with safe and very stable government policies. The country is not indebted at all, and constantly balances its budget, and has a huge trust fund for each citizen as well as free health and dental care. And might I just add here my deepest sympathies to all Norwegian countrymen at this time of greatest sorrow and tragedy.

  21. Wahidah | July 28, 2011

    Thank you! But what do you think about Iraqi currencies dinar? I'm hearing a lot of news on the down low and very private side of news and I'm now exploring a lot of avenues.

  22. Robbie | July 28, 2011

    I liked the article very much. I own cash in foreign currency, because I can see the day when our own currency – the pound sterling – is unusable. It is also not impossible to have to get out of Dodge with a few thousand Swiss francs hidden in the lining of your jacket.

    Of the four currencies mentioned in the article, the Chilean peso comes as a complete surprise, so I am unable to comment on it. The other three I have heard good things about. Of these I have owned Norwegian crowns for over two years now, and I am delighted with them.

    A currency that I do own that has done swimmingly well of late is the New Zealand dollar. I saw it recommended in a book, otherwise I would not have thought of it. I was asking for Chinese renmimbi t the bureau de change, only to be told that these (and also the Indian rupee) could only be changed in China (India for the rupees). For some reason I found myself asking for New Zealand dollars, and I have been well satisfied with its performance, in spite of the country suffering a serious earthquake recently.

    The best defence against inflation is to get out of your currency as fast as possible, and buying a better currency is an easy way of doing this.

  23. shaik mariam | July 29, 2011

    I think the singapore dollar is too hugh to buy in now. what is ur view ? what abt malaysian ringgit ?

  24. shaik mariam | July 29, 2011

    what kind of level do u think Us dollar can fall up to ? which currency will then be the leading currency, ? care to share your thoughts ?

  25. Pamela Del Nin | July 29, 2011

    Here is the actual list of least corrpt countries. To suggest that Australia is badly run is ridiculous. YOU may not like the politics of the current Government but no matter whta party is in power in Australia, it has stability that the US can only dream about.

    Denmark
    9.3
    1
    New Zealand
    9.3
    1
    Singapore
    9.3
    4
    Finland
    9.2
    4
    Sweden
    9.2
    6
    Canada
    8.9
    7
    Netherlands
    8.8
    8
    Australia
    8.7
    8
    Switzerland
    8.7
    10
    Norway
    8.6

  26. Yannis | July 30, 2011

    http://moneymorning.com/reports/USDollar_MMUSD0511.pdf

    I d like to know who is correct, Mr.MARTIN HUTCHINSON or Mr.Jack Barnes ??

    Money Misty Morning

  27. Rajesh Shah | July 30, 2011

    build a school with residence in africa south of sahara.You will have an investment in the property and you will have done a great deed for the much needed community ,"the Children".

  28. pt49 | July 30, 2011

    As an Australian I feel we've been rather lucky in being so close to the Asian economies that are growing so strongly. However one thing can wreck havoc on the AUD… that is a downturn in China. A Chinese slowdown will cause the AUD to drop fairly sharply, probably back to around US$0.75, well down from its current all time high of just over US$1.10.

    Just a few years ago the AUD was US$0.61, so its up about 90% in 2½ years (or the US$ is down about 45% if you prefer).

    The biggest danger in Australia is that our major banks are all holding 50 – 55% housing debt on their books. A downturn here could put a lot stress on our banks if home owners started losing their jobs.

    Personally I'm investing in Iraqi Dinar on the assumption (hope maybe) that this currency will revalue in the future. If and when it does revalue the next problem will be what to invest the proceeds in… precious metals, broadacre farmland and possibly even companies involved in redeveloping Iraq are several options I'll be looking at.

  29. DD | July 30, 2011

    I have heard from others that the Swiss Francs is a good buy and a safe(r) haven, but what sheer propaganda a lot of this article is to say that the UK, Japan and a few others mentioned are in worse shape than the USA. What baloney! Let’s not get away from the fact that the USA is really tens of trillions of dollars in debt mostly due to its own insatiable greed and hegemony and is now the most indebted country in history. Like on what you hear on a lot of the news these days, this country is trying to shift the focus away from what’s really going on.

  30. Kerry | July 30, 2011

    You are saying all of these currencies are safer than the easily accessible Canadian dollar?

  31. Robber Baron | July 30, 2011

    SingDollar is absolutely dependent on trade — ASEAN, China, and US, Australia, €uro and £ plus a bit of Japan. Which is to say, they could get hurt in a signicant FX shift, such as China Renmi revaluation. A very different situation from Swiss, Norway, and Chile. Norway and Swiss would seem strict safe-haven plays. Chile has some growth. But far less stable government and inflation risk. Currency revaluation is not implausible for Chile. Thanks for the EverBank link, checking them out now.

  32. Ian | July 31, 2011

    The only safe currency is physical gold & silver, not fiat currencies.

  33. David | July 31, 2011

    Anyone have specific suggestions for interest-earning investments in safe currencies? The only ones I know of are in Canada. Would be interested in knowing how to invest in Singapore and Chile.

  34. frrankania | August 1, 2011

    Which currencies? One thought is to pick a country that you visit often and like.
    We are changing dollars little by little into MEXICAN PESOS & POLISH ZLOTYS. We have lived here in the mountains of Veracruz, Mexico for 20 years, and have several properties and a business here, so it is practical for us.
    We also have a property in Warsaw and lots of family living there.
    Good luck to everyone!

  35. Vinu Para | August 1, 2011

    How is stable and good sweedish crone OR Finland currency
    as neither of these two are European Econmic Council member,
    nor G 8, but have their own industries, trades, good health care
    system & quite well maintained budget ?. It is correct that Norway,
    Switzerland & Singapore are doing pretty well.

  36. Eric | August 2, 2011

    All currencies are FIAT! The only real money is Gold and Silver.

  37. jerry | August 2, 2011

    thats a potential and sweet profit.. its like cranking milli second.. just kick it and profit.. breakfast of the champion….more power….

  38. GOLDFINGA | August 3, 2011

    GOLD GOLD SILVER JUNK SILVER OOOHHH YEEEAAAH

  39. Bill Frakes | August 4, 2011

    I would have been nice if you had listed the symbols of the currencies. I have the the
    Swiss but not the others.

  40. Pilotu | August 4, 2011

    How about Turkish Lira

  41. iwin | August 6, 2011

    Indian Rupees???

  42. H Finner | August 8, 2011

    I'm wondering how Ian [7/31/'11] or Eric [8/2/'11] could use actual AU and AG coins at the gas pump or grocery store, or mail the electric bill. Re-read M.Hutchinson's lead article [7/26/'11]. Info in notes from R.Baron [7/30/'11], C.Golds [7/29/'11], Werner [7/26/'11], and CM Freeman [7/26/'11] are all useful. Thanks, Money Morning, for this timely article.

  43. Guy Jones | September 2, 2012

    Fantastic article; thank you for sharing your insights.

    Some of the other posters questioned why the Canadian dollar wasn't a viable currency option. Short answer — though Canada is better managed than the U.S., its economy is tightly tied to that of the U.S., and it will also suffer strong effects of any global cataclism that hits the U.S. economy.

  44. Vince | September 8, 2012

    I would never open or invest in a Canadian financial matter or Mexico for that reason, thru President Bush, they have sign back in 2005 the starting of the North American Union fix by Nafta free trade agreement, where they are talking about replacing the US Dollar with the Amero. The US Dollar with crash with too much printing leading to hyperinflation and or no longer be the worlds reserve currency, as China and Russia just to name a few is demanding this.

  45. t. mcguire | October 11, 2012

    What about FX? Does FXF do the same thing as buying Swiss francs?

  46. Sharon | September 5, 2013

    What about someone saying that in hard times our government will impose restrictions on using foreign currency? just like gold?

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