The reason the Aussie can't be the world currency is that it is too small. There was a stretch there where people thought the Swiss franc should play into this equation but it too is too small. All of them are too small to be a reserve currency, as we now use the term, except for maybe the euro but that seems very unlikely to occur given what a mess the continent is. Again maybe the entire concept should change; maybe the Brazilian real should be some sort of benchmark for Latin America, the Aussie for Oceania and so on.
In relating this to what an individual investor should do I think about a couple of different things. One is the Nassim Taleb concept that I first mentioned a few years ago about having 90% of the portfolio in t-bills from around the world and then going berserk (my word. not his) with risk with the other 10%.
His idea was to be country agnostic by holding currency in one form or another from many different countries to avoid some sort of black swan taking down the one country that you might be home biased in or some sort of predictable event taking down one single country. I first started using foreign t-bills and currency ETFs in client accounts in 2006 but nowhere near the proportion that Taleb talked about. We do a little more with this than we used and will probably increase this some in the future with more t-bill or note exposure.
This sort of exposure was obviously going to get easier to access and this has been the case. WisdomTree, PIMCO and iShares have come out with products that target various foreign bond market segments and average maturities and of course there are quite a few currency ETFs. If I had to guess however I think the ETF industry is less interested in currency funds than bond funds.
The New Zealand dollar won't ever be a reserve currency but there are some favorable attributes and depending on portfolio size it would be possible to add exposure. I think there are currency accounts where as little as $10,000 will allow for holding a currency and although bond minimums tend to be around $100,000 this will come down if it hasn't done so already in some places.
On a lighter note the other think I think about in this context is the Jason Bourne safety deposit box. You might have a Hungarian passport, a pouch of diamonds, a few stacks of Swiss francs and Sing dollars, a small roll of duct tape (I have this in my fire pack and it has come in handy on wildfires before) a gun of course and maybe a couple of Clif Bars. This bit with Bourne's safety deposit box really amuses me.
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There was an article in yesterday's Telegraph about a possible Trans-Tasman currency including the NZ and Oz currencies, which led to a very amusing discussion in the comments about how a UK-AU-NZ (and, perhaps, CA) single currency would be of benefit.
Recently the Island of Samoa changed date because they were losing out on two working days a week with NZ and AU and "do a lot more business with New Zealand and Australia, China and Pacific Rim countries such as Singapore."
It makes sense, on the surface, for these countries and currencies to align and converge but, as shown in Europe, unless there is complete political and monetary union things can go very wrong.
The charts for the NZD shows, in 2008, how individual currencies can fall in a crisis, which highlights the necessity to avoid home bias. As I do not have 100k to drop on a foreign bond I have managed funds that can do that for me for a fraction of the outlay, although I question the need as the ETFs and managed funds I have in foreign stocks/indexes already mitigate a lot of currency risk?
I think Bourne could also have had a sewing kit, money belt and cyanide capsule.
Sewing kit--for clothing or skin? either way I like it. I would add a license plate to throw on a car that needs to be stolen. Apparently he did this in the first movie but I don't remember that.
Sewing kit definitely for skin, but also a needle for prising open broken PC DVD/CD players and short-circuiting relays. Also cotton is useful to tie together messy cables and a lamb roast.
The license plate I don't remember either, did he ever have a car that was registered in his name?
One requirement of a reserve currency is that a dominant military power (for example,Great Britain in the 19th and early 20th century, the US thereafter until ...?)that is supported by a domestic economic engine, logical fiscal management and a respected foreign policy.
Gold remains the ultimate hedge of a currency through history.It needs no other standards for strength. The element stands by itself.
The countries mentioned in the post do not meet history's qualifications for a global currency although, Singapore, as Switzerland, may qualify due to special circumstances.
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