How to Invest in Devaluation

Currency devaluation is a process in which the government of a country intentionally owers the value of its currency. In the past, this has been done to strengthen weak economies that struggled to crawl out of recessions and depressions. If you believe that a currency devaluation is imminent, taking the proper investment steps could help you realize a significant gain. When devaluation is on the horizon, those with hard assets will benefit once the currency is devalued.

Instructions

1. Purchase precious metals such as gold, silver and palladium. When you own precious metals, they will become worth more money when the currency is devalued. According to a December 2008 article in Forbes magazine, a 30 percent currency devaluation would increase the value of all assets by 43 percents immediately.

2. Buy hard assets and hold them for a long time. When the currency is devalued, all property becomes worth more instantly because it takes more dollars to buy the same property that cost less before the devaluation occurred. For example, if the currency is devalued by 20 percent, the value of your house goes up by 20 percent overnight, according to the Forbes article. Investing in real estate and other property might bring significant returns when devaluation occurs.

3. Place a short order in the Forex market. In the Forex market, currencies are traded against each other in pairs. If you suspect that a currency is about to be devalued, place a short order against that currency. Then when the currency goes down in value, you make money.

Tips & Warnings

• Avoid holding on to cash as a savings strategy when devaluation is expected. Instead, put your money into hard assets and then after the currency is devalued, they can be sold for more cash.

• Investing with the expectation of the valuation can be risky. This type of information is not usually given out in advance by governments. If you invest in devaluation and it doesn't happen, you miss out on other investment opportunities.

References

• University of Washington; Global Production and Currency Devaluation; Laixun Zhao
• Journal of Development Economics; Investment, Devaluation, and Foreign Currency Exposure -- The Case of Mexico; Mark Aguiar; June 1, 2004
• "Forbes"; Dollar Devaluation to Fix the Great Recession; Frank Beck; December 2008