Currencies for the Long Run, Part 2: The Appreciators

In part 1 of this series “Currencies for the long run”, I posted a chart of the “ABC” currencies of Australia, Britain, and Canada, which were relatively stable and range bound, but showed a long-term depreciation trend of 20-50% against the US dollar over the past half century.Β  By contrast, I wanted to show a chart of three currencies which have shown a strong long-term trend of appreciation against the US dollar, which can largely be attributed to differences in their trade balances / domestic savings habits and corresponding monetary policies.

These three currencies are the Japanese Yen, Swiss Franc, and Singapore dollar.Β  The chart, understandably, only really takes off in 1971 when currencies started floating freely again for the first time after World War II, and some readers may remember the Japanese Yen was first released from its post-war level of 360 to the US dollar, the Swiss Franc was around 5 to the dollar, and the Singapore dollar was pegged at 60 Singapore dollars = 7 British pounds in the first year’s after Singapore’s 1965 independence.

The long-term appreciation of these currencies vs the US dollar over the past few decades may have some investors consider basing their accounts in these “stronger” currencies, but it is important to be aware of what drivers made these currencies strengthen and which are likely to continue.Β  As I pointed out in my article contrasting Dow 20,000 vs Nikkei 20,000, most of the appreciation of both the yen and the Nikkei happened when the Japanese economy was still growing strongly in the 1970s and 1980s, and since then the yen or Nikkei have often moved in opposite directions.Β  The Singapore dollar and Swiss Franc have two different dynamics, with different advantages and risks of each over the next few decades.

Currencies for the long run, part 2: the appreciators