Insights 
VT 
The Collapse Of Many Currencies
Over a long-term investment horizon of over 50 years, it’s vital to include hard assets or stable value stores in financial strategies. The US dollar has depreciated about 98% against gold since August 1971, when gold was $35 per ounce, and it has lost 50% of its value since October 2022.
The data presented by Deutsche Bank provides a very long-term view of currency performance, drawing attention to how various national currencies have fared since the end of the Bretton Woods system in 1971. The most notable observation is that very few fiat currencies have outperformed the US dollar, and most have done considerably worse. One outlier has been the Swiss franc, which for decades was supported by a monetary policy once bound to gold through a previous reserve mandate. That requirement has since been lifted, but its legacy still lingers in the currency’s perception as a relative safe haven.
On the contrary, many currencies—once seen as stable—have suffered steep and enduring devaluations. The comparison here does not include extreme examples such as hyperinflation cases, yet even among typical advanced and emerging markets, the loss of purchasing power has been steep. The euro helped unify and stabilise some previously disjointed European currencies, which partly explains the stronger performance of certain eurozone members.
The Role Of Gold As A Benchmark
That said, gold serves as the consistent benchmark here—not a foreign currency, nor a central bank index, but a tangible asset with no counterparty risk. When we widen the lens over more than fifty years, gold’s rise against every form of fiat currency becomes difficult to ignore. The dollar, in particular, has lost nearly all of its value in gold terms since it decoupled from the metal in the early 1970s, and since late 2022, that pace of decline has intensified.
From our perspective, that comparison is not just symbolic; it exposes a deeper trend affecting purchasing power and wealth preservation. If gold is still capable of holding value while most currencies continually fall against it, we must contemplate what actually constitutes stability in a financial system built mostly on fiat promises.
Traders dealing in derivatives—especially those operating in currency markets—should treat this data not as historical trivia but as a lens through which long-term risk becomes more apparent. A major issue with many short-dated instruments is that they don’t price in persistent currency depreciation. That leaves exposure lurking quietly behind ostensibly neutral positioning. Rolling forward contracts to maintain exposure while currency values decay under the surface is functionally inefficient.
We should not confuse price activity with sound value. The fact that a currency trades in high volumes or at tight spreads does not negate the erosion unfolding gradually in real terms. That erosion typically doesn’t appear on a candle chart, but it does factor heavily into margin models and settlement risks. And when currencies devalue too quickly—falling by 50% in less than two years, for example—they spike volatility and trigger liquidity shocks across derivative chains.
This isn’t a theoretical exercise for long-only investors planning for retirement. These developments reflect directly on margin posting, implied volatility calculations, and liquidity assumptions. Events such as these call for a closer consideration of counterparty risk in multi-currency swap positions, which often carry hidden exposures due to FX assumptions embedded in pricing models.
We must remember that proper hedging is not only about protection during known storms but preparedness for value dilution that creeps in during periods of broad monetary easing or soft demand for the domestic currency. Even interest rate differentials—once highly predictive of currency moves—have at times failed to cushion holders against steep falls, especially when central banks take asynchronous approaches.
Forward positions now must be stress-tested against more aggressive drawdowns, even if directionally the base scenario appears benign. It’s not enough to weight risk toward price; we must also explore its temporal decay. Traders should begin to ask: what is the measure of a good hedge in a world where money itself becomes the unstable component?
The solution may involve shifting more attention to instruments tracking real assets, adjusting notional exposures in light of implied inflation, or staggering maturities over varied regimes to reduce exposure to policy shifts. We can’t rely solely on traditional measures like purchasing power parity—they are backward-looking and don’t always anticipate future jolts.
Debasement isn’t a headline event. It happens quietly, until all at once, valuations crack, spreads widen, and liquidity demands surge. Those moments cannot be hedged retroactively. That’s why now is the time to scrutinise every unsupported currency premise embedded in your strategy—even those that have historically appeared safe.
