Nine ETFs To Play Currency Debasement (GLD, GSG, DBC, BZF, EPI, BKF, EEB, SHY, TIP)

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December 12, 2010 10:20pm NYSE:BKF NYSE:BZF

As developing nations continue to implement loose monetary policies, keep interest rates low and boost money supply, a nation’s debt and currency debasement should be of much concern. 

Most recently, a study indicated that the U.S. national debt has ballooned nearly 12 fold over the last 30 years.  Additionally, over this same time span the ratio of debt to GDP has gone from nearly one-third to 85%.  During this time of exploded debt, GDP has only expanded 5.3 times, indicating that debt is growing at twice as fast as the U.S. economy.  Similar trends have been seen in Europe, in particularly Greece, Spain and Portugal.

Some concerns of this exponential growth in debt include hyperinflation, as a result of printing more currency, a decline in the value of a nation’s currency, better known as currency debasement, and increased costs of borrowing, which make it difficult to chip away at deficits.

Some experts suggest that this trend in the developing world, in particularly the United States, is likely to continue as nations have become accustomed to borrowing extraordinary amounts of money and printing extra currency to stay afloat.  If this is the case, than inflation will be inevitable and currency values will diminish. 

Some possible ways to protect against currency debasement and increases in inflation include the following:


Traditionally, gold trades inversely to the U.S. dollar and has long been a traditional hedge against inflation and currency weakness.  Gold can be played through the SPDR Gold Trust (NYSE:GLD), which is backed by physical gold and the most actively traded gold ETF.


In general, as the U.S. dollar losses ground, commodities reap the benefits.  Additionally, the world is growing and demand for commodities is likely to follow.  Some broad based commodity plays include the iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG) and the PowerShares DB Commodity Indexed Tracking Report (NYSE:DBC), which includes exposure to gasoline, crude oil, sugar, copper and other sought after commodities. 

Emerging Markets

In particularly, Brazil and India are expected to see financial strength, which translates to a stronger currency.  Brazil continues to be flush with resources that are in high global demand and India is seeing increases in business investment, strong capital markets and boosts in consumer confidence.  Brazil can be accessed through the WisdonTree Dreyfus Brazilian Real (NYSE:BZF) and India can be played through the WisdomTree India Earnings (NYSE:EPI).  For exposure to both these nations, one could take a look at the iShares MSCI BRIC Index (NYSE:BKF), which allocates nearly 49% of its assets to Brazil and India or the Claymore/BNY Mellon BRIC ETF (NYSE:EEB), which boasts nearly 67% of its assets to these two nations. 


The key in fixed income is to sticking to short-term investment tools.  Interest rates are more likely than not to increase sometime in the near future and by utilizing short-term bonds, one limits the risk of a spike in interest rates.  A good play here is the iShares Barclays 1-3 Year Treasury Bond (NYSE:SHY), which holds 50 different U.S. Treasury Notes all expected to mature sometime in 2012.  Another notable option in the fixed income world is the iShares Barclays TIPS Bond (NYSE:TIP), which is a Treasury Inflation-Protected Security whose principal and interest payments grow with inflation. 

Although currency debasement and inflation remain threats, it is equally important to keep in mind the inherent risks that are involved in investing. A good way to protect against these risks is through the implementation of an exit strategy which triggers price points at which an upward trend could potentially be coming to an end.

Written By Kevin Grewal From ETF Tutor  Disclosure: No Positions 

Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.

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