You’re going to fall asleep and not wake up for 10 years. Something like in the style of sleeping beauty. However with one difference. You know it’s going to happen at some point in the not too distant future. You just don’t know exactly when.
Now. Here’s a question to ponder.
If you know you’re not going to wake up for 10 years, how would you choose to preserve your savings?
While this sounds a lot like a fairy tale, today we face a not completely dissimilar situation.
Table of Contents
- The World’s Monetary System is Changing
- Why Negative Interest Rates?
- Technology and Money
- US Dollar’s Reserve Currency Status in Danger
- When Sleeping Beauty Wakes Up, What Will Money Look Like?
- Look to the Past to Prepare for the Future
- How to Transfer Your Wealth into an Unknown Future
- Gold and Silver are “Financial Insurance”
Estimated reading time: 7 minutes
The World’s Monetary System is Changing
The world’s monetary system is dying – or at the very least changing profoundly. So it’s worth pondering how you will negotiate this shift.
So what’s changing?
For a start, negative interest rates have been in place in many parts of the globe for some years now. While these negative rates have started to drop this year, in May there was still about $12 trillion in total for negative-yielding global debt. Down from a high of more than $18 trillion in December.
Or put another way, perversely, investors are paying to lend the borrower money!
This is completely bonkers! It’s not ideal for banks either. Because banks make money on the difference between what they can take off borrowers and how much they have to pay lenders. (Of course it helps they can conjure money out of thin air too!)
Currently the borrowers are costing money as interest rates are so low. While in most places the lenders haven’t quite started to “pay to save” money, it does exist in the likes of Denmark and Portugal.
In March the Wall Street Journal reported:
“Nykredit, Denmark’s biggest mortgage lender, said more than 50% of its loans with an interest period of up to 10 years have a negative interest.”Source.
S&P Global reported that as of June 2021:
“In Denmark and Germany, deposit thresholds for negative rates have already been cut to as little as €10,000 in some cases.”Source.
“With 349 banks in Germany charging negative interest rates to private customers at the end of June, the number almost doubled from 171 at the end of 2020”Source.
Why Negative Interest Rates?
The world’s central banks are implementing negative interest rates in the hope it will force people to spend money and keep the current debt based money system going. Debt must continually grow for the system to function.
Technology and Money
On the flip side, there is a lot of new technology and advancement happening in the world of money and finance. It doesn’t have to be doom and gloom. We’ve seen the birth of Bitcoin and the rise of cryptocurrencies in recent years.
Like many other areas of life it seems decentralisation is coming to money as well. In the long run that’s a good thing. Let people decide what they want to use as money.
Perhaps we will eventually no longer have various national currencies?
US Dollar’s Reserve Currency Status in Danger
The average length of the previous 5 reserve currencies is 94 years.
The US dollar has been the global reserve currency for 101 years. So it’s getting fairly long in the tooth. What will replace it?
When Sleeping Beauty Wakes Up, What Will Money Look Like?
The difficulty is, much like our “sleeping beauty” mentioned earlier, we simply don’t know how all this will play out.
- What will the monetary system look like in 5 or 10 years?
- Will today’s banks still exist?
- What impact will the currency printing (which was massively increased worldwide in response to Covid19 lockdowns) have on the value of today’s currencies?
- Will negative interest rates cause a spending frenzy?
- What about all the government spending also as a result of the Covid19 lockdowns? Will we see high inflation as a result in the coming years?
Look to the Past to Prepare for the Future
Here’s a novel idea. Consider looking to the past to prepare for the future.
It is said that an ounce of gold bought a fine toga and pair of sandals in ancient Rome. Today, an ounce of gold still buys a quality mens suit and shoes. Whereas the US Dollar has lost over 94% of its value since 1913.
In 2021, Central Banks have continued adding to their gold reserves. The World Gold Council notes:
“[C]entral banks have been buying gold during the first four months of 2021. Over that period, we estimate that the official sector has added 150-200 tonnes of gold. A significant portion of this buying has come from the central banks of Hungary and Thailand, who added 63 tonnes in March and 43.5 tonnes in April, respectively. In fact, these two purchases are the second and third largest monthly central bank gold purchases in recent history, eclipsed only by Poland’s 100 tonne purchase in June 2019”.Source.
While China who is not only the largest gold miner on the planet, but also the biggest consumer, this year once again started importing large amounts of gold.
What are they preparing for?
How to Transfer Your Wealth into an Unknown Future
Wealth can be thought of as an accumulation of knowledge. Gold is a stable means to safely transfer that wealth into the future.
Bitcoin and cryptocurrencies may well play a part in the future monetary system. But it’s very difficult to predict which one, if any, will win out over the others. Plus they are so far untested in a global crisis.
Whereas gold and silver have stood the test of time. They have been used as money and retained their value for millenia.
Gold and Silver are “Financial Insurance”
Think of physical gold and silver as your financial “insurance policy”. Gold and silver are the only financial assets that have no counterparty risk. This simply means you are not relying upon another party to remain solvent for your asset to maintain its value.
So store a portion of your wealth in physical gold and silver. A rule of thumb is 5-10% of your liquid assets (that is excluding property/real estate) in gold is recommended. Read more about how much gold you should hold in your portfolio.
Then you are free to continue to invest and speculate with your remaining savings. Whether that be stocks, bonds or taking a punt on a few cryptocurrencies. Or even investing in a promising start up company.
That way when you “wake up” in 5 or 10 years time, regardless of how things change, you can rest easy that your wealth in gold and silver will hold its purchasing power.
Then you can transfer your stored wealth into whatever is being used as money at that time. Or “spend” your gold and silver on whatever the most undervalued assets are at that time.
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Editors Note: First published 15 October 2019. Updated 28 September 2021.