Finance Risk #4: currency war The phrase “currency war” sounds so dramatic. But it’s not a bad way to describe the battling and jockeying for advantage that governments sometimes do in an effort to gain a competitive edge in the winner-take-all world of global trade. As countries around the world look to rebuild their economies after the pandemic, it’s entirely possible that we’ll see many of them attempt to weaken their currency by increasing government spending, by boosting the supply of money, by cutting interest rates or by outright currency trading in the open market. Such moves help make exports cheaper and imports more expensive, which is sometimes seen as a way of boosting economic growth and employment. These are big benefits after such a long period of economic uncertainty. The problem is that when a lot of countries try to take the same actions all at once, it can cause tremendous uncertainty for global trade, with increasing tit-for-tat tariffs and trade barriers. That can actually harm local manufacturing and export sectors − exactly the opposite of the intention. Whether a full-on currency war breaks out or not, massive fluctuations in foreign exchange rates can be a serious issue for snowbirds. If the exchange rate between the U.S. and Canadian dollars fluctuates wildly, for example, it could make going south for the winter a whole lot more expensive. WHAT TO DO ABOUT IT: average in on currency purchases Currency movements are notoriously difficult to predict − even the experts can be humbled by all of the different factors that make a given currency go up or down in value. The simple fact of the matter is, short of delaying or postponing your overseas travel (and, after the pandemic, who wants to do that?), the best thing that you can do is to try and smooth out the potential impact of currency fluctuations. By “averaging in” and buying incrementally over a period of several months, you canmake the most of the ups and downs that come with currency movements, and manage the emotions that can affect us when we purchase a volatile commodity such as currency in a time of continued uncertainty. We’d be remiss if we didn’t mention that the Canadian Snowbird Association has a bulk-buying currency purchase program which offers better rates than your usual bank. Every month, the CSA posts an online chart that compares their rate to three other financial institutions − you’ll see that it’s consistently better by a couple of cents. Keep in mind that the break on the transaction fees which the banks charge can make the savings even better. CSANews | SPRING 2021 | 29
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