Forex FAQs: If the US dollar were to collapse or be significantly devalued, what investments would be a safe haven?

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Forex FAQs: If the US dollar were to collapse or be significantly devalued, what investments would be a safe haven?
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This question was originally answered on Quora by Andrew Beattie

This is an interesting thought experiment, but it needs some parameters. A collapse is a very extreme case, and would be very unlikely to happen purely for economic reasons. Say the dollar starts plummeting, the U.S. is defaulting and the world is seeing their dollar reserves and treasuries shrinking in value. The U.S. would most likely replace the USD with another currency - it could still be called the USD, but the bills would have to be distinct.

Then the USD would be exchanged for the new currency at some exchange rate that allowed the U.S. to cut the debt outstanding to a manageable level - say, 2 old USD to 1 new. So the world's USD reserves would be halved in value.

Yes, this would hit some countries more than others (China and Japan, for certain). Yes, it would drive a lot of people to invest in land, gold and guns. Yes, people may leave the U.S. to more fiscally responsible nations. Yes, it may even prompt war.

However, the same scenario has played out before in smaller regions like South America. Once a country has replaced its currency, it has difficulty attracting foreign capital. On the upside, the reduction of the debt burden helps the overall economy - ideally by reducing the tax burden on the citizens who pay the debts with their taxes. Countries have bounced back from devaluation quite strongly (Russia 1998).

The idea that the USD would somehow wreck the world economy simply because it is the world reserve currency is dubious at best. Another currency from a more fiscally responsible nation - or even a new currency based of a basket of secondary currencies - could quickly fill the gap.

So the answer to the question in this situation - what the safe haven investment would be - is anything not denominated in USD or physically tied to the U.S. (the value of American land, for example, would be halved as it is necessarily denominated in USD). That could be another currency (the Australian dollar is nicely commodity driven and has a history of low intervention), non-U.S. companies (ideally with little dependence on the U.S. market), land in other nations, and moveable physical assets like precious metals, art and so on.

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About Andrew Beattie
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Andrew Beattie has spent most of his career writing, editing and managing financial content as well as more general web site material in all its many forms. He is especially interested in the future of search and the application of analytics to the business world. He has been a long-time contributor to and is currently venturing forth on ForexDictionary.
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