A chart from Deutsche Bank shows how the US dollar has performed against other currencies since 1971. The Swiss franc has often performed better because Switzerland used to require at least 40% of its reserves to be in gold, a rule not followed by other countries. Only a few currencies, such as some from Japan and the eurozone, have done better than the US dollar, even after the US stepped away from the gold standard. The introduction of the euro helped some currencies stay strong. Many currencies have seen significant drops in value, with half of them experiencing steep declines. This list does not include extreme situations like Zimbabwe’s collapse but still highlights many previously stable economies suffering downturns. Over a long-term investment horizon of over 50 years, it’s essential to include hard assets or stable value stores in financial strategies. Since August 1971, the US dollar has lost about 98% of its value against gold, which was $35 an ounce at that time. It has also lost 50% of its value since October 2022. Deutsche Bank’s data offers a long-term view of currency performance, especially since the end of the Bretton Woods system in 1971. The key takeaway is that very few fiat currencies have outperformed the US dollar, while most have performed significantly worse. An exception is the Swiss franc, which benefited for decades from a monetary policy once tied to gold. Although that requirement has been lifted, the currency is still seen as a safe haven. In contrast, many currencies that were once considered stable have experienced major devaluations. This comparison excludes extreme cases, but even stable advanced and emerging markets have lost significant purchasing power. The euro has helped stabilize some previously fragmented European currencies, which explains the better performance of certain eurozone members. Gold serves as a reliable benchmark here, not as a foreign currency or central bank index, but as a tangible asset with no counterparty risk. Over the past fifty years, gold’s value has risen significantly against all fiat currencies. The US dollar, in particular, has lost nearly all its worth in gold terms since it separated from gold in the early 1970s, with a faster decline since late 2022. This comparison isn’t just symbolic; it reveals a trend impacting purchasing power and wealth preservation. If gold retains value while most currencies drop against it, we need to rethink what stability means in a financial system built mainly on fiat promises. Traders in derivatives, especially in currency markets, should view this data as a way to identify long-term risks rather than just historical information. Many short-term instruments often fail to account for ongoing currency depreciation, leaving hidden risks beneath seemingly stable positions. Rolling contracts forward while currency values decay is inefficient. Price activity shouldn’t be confused with value. Just because a currency trades frequently or has tight spreads doesn’t mean it’s not losing value in real terms. This erosion might go unnoticed on charts but is crucial for margin models and settlement risks. Rapid currency drops, such as a 50% fall in under two years, can spike volatility and create liquidity shocks across derivatives. These scenarios are not just theoretical for long-term investors saving for retirement. They directly affect margin requirements, volatility predictions, and liquidity assumptions. Situations like these make it vital to consider counterparty risk in multi-currency swaps, which often carry hidden exposures from pricing model assumptions. Proper hedging isn’t just about protection during known crises; it’s also about preparing for gradual value loss during periods of loose monetary policy or weak demand for the domestic currency. Even interest rate differences, which used to predict currency movements, sometimes fail to protect against severe drops, especially when central banks act inconsistently. Forward positions now need to be tested against larger potential drops, even if the overall scenario looks safe. It’s not enough just to consider price risk; we must also account for its time-related decline. Traders should start asking: what defines a good hedge in a world where money itself is unstable? The solution might involve focusing more on instruments that track real assets, adjusting expectations based on implied inflation, or spreading maturities over different regimes to minimize exposure to policy changes. We cannot rely solely on traditional measures like purchasing power parity, which are outdated and often fail to predict future shocks. Debasement happens quietly until it suddenly leads to cracks in valuations, widening spreads, and surging liquidity demands. Such moments can’t be retroactively hedged. Now is the time to examine every unsupported currency assumption in your strategy, including those that have historically seemed safe.

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