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My wife and I have been saving aggressively for the last year now and all of our savings are in the form of cash in the bank. About half of the money is in US dollars and half is in Canadian dollars. I have been reading about quantitative easing 2 (QE2) and it seems like I can expect some loss due to devaluing of US dollar. I also read that Canada would be doing some easing also. Is this correct? If so, it seems this would represent a substantial loss because my savings are in cash.

I realize it might be difficult to give me direct financial advice as it might depend on other things. So, could anybody just say theoretically, if someone was trying to hedge against inflation, what would one do? Does it matter what currency I have my savings stored in CAD vs. USD?

  • The effects of QE and the subsequent tapering of QE will affect stocks,bonds, gold etc, but if all your money is in Cash, the effects are negligible, except that QE will lead to inflation and your cash would lose some value. – Victor123 Jan 13 '14 at 18:19
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QE2 will mean that there are about $500 billion dollars in existence which weren't there before. These dollars will all be competing with the existing dollars for real goods and services, so each dollar will be worth a little less, and prices will rise a little. This is inflation. You can probably expect 1.5%-2% annual inflation for the US dollar over the next several years (the market certainly does in the aggregate, anyway).

This is in terms of US-based goods and services. QE2 will also reduce the amount of other currencies you can get for the same dollar amount. The extent to which this will occur is less clear, in part because other currencies are also considering quantitative easing.

Your long-term savings should probably not be in cash anyway, because of the low returns; this will probably affect you far more than the impact of quantitative easing. As for your savings which do remain in cash, what you should do with them depends on how you plan to dispose of them. The value of a currency is usually pretty stable in terms of the local economy's output of goods and services - it's the value in international trade which tends to fluctuate wildly. If you keep your savings in the same currency you plan to spend them in, they should be able to maintain their value decently well in the intermediate term.

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IMO, QE2 will likely have no perceptible impact in the near term.

Keeping all of your savings in a bank guarantees that you will lose money to inflation & taxes. I'd suggest consulting a financial advisor -- preferably someone who understands issues facing someone with assets in the US and Canada.

In terms of what portion of your savings should be in USD vs. CAD, that's going to depend on your situation. I'd probably want more assets in the place that I'm living in for the next several years.

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    Agreed, QE2 is not the main driver of current instability. The US economy is going to become less significant as emerging economies become much wealthier and that will result in large-scale financial rebalancing. – Turukawa Dec 5 '10 at 12:13
  • Never underestimate America's ability to manipulate factors to come out on top. Right now (Dec 2010), the problems with the Euro have left the dollar as the "best of the worst" currency. Where else are you going go? – duffbeer703 Dec 5 '10 at 14:19
  • Oh, I agree, I just mean as a share of overall international trade, the US economy is going to become smaller (in absolute terms it should continue as "normal"). That will, over the long term, result in quite significant changes to global trade. Since this query has to do with the long term... – Turukawa Dec 5 '10 at 15:20
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Probably means next to zero chance of having decent rates on savings accounts for the near future - who needs your money if banks can have government money for free? Probably no short-term effects on you besides that.

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