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Is cash becoming trash

18th October 2021

We all need money and use it every day. So, how much real value does it hold, and what am I losing by keeping cash in the bank?

There is one major problem for cash in today’s global economy – inflation; with governments across the globe printing money like never before, inflation has gone through the roof to dampen the effects of the Covid pandemic. Excess inflation is due to the surge in fuel prices, not only due to the recent ‘fuel crisis’ but overall, since January 2020. Consider this scary fact, 40% of all US Dollars in existence were printed in the last 12 Months; quantitative easing will have contributed to unsettling implications for world economies when trying to recover from the pandemic; this has sparked some debates about inflation, whilst asset prices have soared.

Currency in circulation is the amount of money that has been issued by monetary authorities minus currency that has been removed from the said economy. With more cash in circulation, the value of cash decreases and inflation is driven ever higher; the current rate of US inflation is 5.25% which has doubled in the past 2 Years and means that investors holding cash in the bank at 0% interest are losing money at an alarming rate. If you have $100K in cash now, it could be worth less than $75K in real terms within 5 Years. It is expected that as the economy begins to reopen, upward pressure on prices will occur, primarily due to supply bottlenecks in some industries.

Generally, it is suggested that you hold up to 6 months of your current income in cash for ’emergencies’. The real interest rate is an indicator of real growth; if the interest rates are lower than the inflation rate, savings could lose purchasing power. Any surplus to your current income cash should be achieving growth above inflation; if you are holding significant amounts in currency, you could be getting poorer each day as inflation eats away at your savings.

So how much cash will you hold? And when will you stop the losses?
Inflation is forecast to continue growing to as much as 3.9% in the UK at the beginning of 2022. Global inflation is set to hit 3.24% in 2022, down 0.3% since 2021; this looks like the beginning of some recovery since the height of the pandemic.

We can help you achieve above-inflation growth on short term asset-backed bonds in USD and GBP – contact our experts today to learn more.

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