Americans are using less cash than ever, and younger Americans are leading that change. In fact, there was a drop from 36% in 2011 to 24% in 2016 in the number of cash-based transactions in the United States.
What would you do if the electronic money system collapses? What if the currency in your country became devalued? What if blockchain were to collapse and all that Bitcoin becomes useless?
We all know to diversify our retirement portfolios- don't put all your eggs in one basket, as they say. But what about diversifying your currency as well?
Diversification Is About Hedging Your Bets
When you buy stock in a company, you are betting that the corporation and subsequently its assets will grow by a factor greater than what you could get in interest by putting that money in the bank. If you invest all of your money into one company and that company fails you will lose your entire life's savings.
To mitigate risk, you want to diversify your investments, either by buying into multiple enterprises or by using risk-reduced mutual funds or ETFs.
The same thing works for currency. You may not think of things like gold and Bitcoin as legitimate currencies, but they are often used as such. Every kind of currency, from plastic and cash to bitcoin and gold, has its upsides and its downsides. If you cash every paycheck and carry around wads of cash, there's a good chance that you will have some of it stolen or damaged at some point. Gold coins are hard to convert and really only do so in terms of their relational value to paper currency, and they have just as much chance of getting stolen. Plastic gets stolen often, but there are protections for the consumer, though merchants often pay the price.
It's A Volatile World Out There
There's a lot of unrest in the world, and at any time any number of governments could find themselves under duress. It has been happening in Venezuela for years and the situation there is growing more dire every day.
You just never know what is going to happen next, so diversifying your currency can help manage your risk and increase your chances of survival should something go wrong.
Plastic can be very secure for the consumer since there are protections against fraud, but it is costly for merchants in transaction fees and fraudulent charges. The downside is that all your money is in a bank where you can't get to it in a crisis and if the FDIC collapses you may have no recourse to get that money back.
Cryptocurrency, like Bitcoin and Ethereum, doesn't rely on central banking, so there's a lot less chance they will open you up to identity theft.
The problem is that if it is stolen, you can never get it back. Also because of its untraceable nature, it is often used in crimes. It's great to have if you don't want any record of your private transactions, but if the internet is ever damaged this currency will disappear.
Cash is always the right size and color, but it is not without risks. Transactions are relatively anonymous, and there are no fees, but it is easily stolen or damaged, and your bank isn't going to replace lost currency like they will void a fraudulent credit card transaction. If communications systems go down and you can't get at your plastic or cryptocurrency, cash is likely to hold its value at least for a time.
Gold is the preferred currency for many people who prepare for the worse case scenario because gold has been valuable since the beginning of recorded history and is likely to continue to be so. If all other currencies fail, gold will still be there. The downside is that it is easy to sell, heavy to carry, and dependent on the market for its value.
Currency Is Under Attack
Already in places like India paper currency is being voided by the government because of concerns about crime. Denmark is no longer printing paper currency, pushing citizens instead to the use of an app on their phones as a form of payment. Nearly 7% of all Bitcoins are stolen, making it a risky investment.
In an uncertain world, it's best to mitigate risk by diversifying your holdings, and that includes your currency. Learn more about the importance of currency diversification from this infographic courtesy of the United States Gold Bureau.
Are you fully diversified?