Saving in the middle of a volatile currency market can be a particularly stressful endeavor. Even if the funds we consider are only personal savings, they can be subject to the risks of a currency war as much as those of an investor. Between the fluctuations in comparative values, the changing costs of related goods that we need to maintain our lifestyles, and the possible implications of competitive devaluation on our employment, we need to be able to understand how it is that a currency war impacts our personal savings at home.
The first threat that a currency war poses against our personal savings is on the indirect value of our money. While the value of our savings account in terms of its exchange rate might not necessarily come straight to mind when doing the yearly budget, it is important to remember how it is that all of our money (as fiat currency) is only worth its weight in comparative value, since the gold standard is no longer relevant. This means that your retirement savings are only worth as much as what the international community is willing to accept them for.
While reasonably self-sufficient countries such as the USA don’t need to worry so much about that, it is still important to keep in mind how much the comparative value of our savings is, and understand how this value fits in with our long-term plans. This becomes more intuitive if we then look at how it is that imported goods can fluctuate in value overnight as a result of competitive currency devaluations.
The easiest way to understand how it is that volatile currency markets can impact a personal saver’s wealth is to look at that person’s purchasing power for tangible goods. Perhaps a saver’s financial goal is to purchase a new vehicle in a few years. Traditionally, car prices are competitive from a pricing stand point, in that consumers are able to shop fairly in terms of both features and pricing. However, as vehicles from international manufactures can suddenly be imported at a much lower cost, our saver might suddenly realize that these cars have an extremely appealing low cost for buyers.
While this is a perk at first, it becomes an issue for when this saver tries to sell or trade-in their older car. Because of the way in which the international vehicles have pushed down the price of a new car, the price benefit of purchasing the older vehicle from the saver is reduced, meaning that the saver needs to discount the selling price of their car even more than they would have otherwise in order to get some money that can be used for the new purchase. This essentially means that the customer’s total net worth has decreased as a result of another country’s monetary policy, because the market value of their tangible goods has been decreased.
Another place that a domestic saver might see the implications of a currency war is at their place of employment. For example, in the 1980s, many domestic workers lost their jobs as a result of outsourcing. Simply because of the way in which companies could save money be relocating their offices and factories overseas, workers found themselves unemployed as a result of another country’s currency policy.
What’s worse, because of the way in which this increased the unemployment pool (and therefore the quantity of people searching for local jobs), employers were able to pay workers less for the jobs that they did before. The end result is that their savings pool would grow at a lower rate, and put them in a much more difficult position financially. Combined with their inability to gain some short-term liquidity by selling off their assets (such as vehicles), the end result is that an individual can be stuck in an extremely difficult financial position as a result of this sort of global scenario.