Money Matters: Understanding Currency Debasement

A Look at the Markets: S&P 500

The S&P 500 gapped upwards this week (blue arrow). In trading, we call it a 'gap' when today's opening price is higher or lower than yesterday's closing price. Imagine a space or gap on the price chart - this space often gets 'filled' later when prices move back to those levels, though this doesn't always happen.

Two main factors seem to be driving this positive movement in the market:

• Firstly, new reports show inflation is falling in the United States. This means the central bank might lower interest rates, which would be favourable for businesses.

• Secondly, there are signs of possible peace talks in the Middle East. This could help stabilise the global business environment.

If prices keep rising, this would align with the overall upward trend we observed throughout 2024 (the blue trend lines on the chart).

Money Matters: Understanding Currency Debasement

In today’s newsletter, I want to re-examine a very important topic that affects everyone's money: currency debasement. Don't worry if this term sounds complex – we'll break it down into simple concepts that you can understand and use in your business conversations. In addition, understanding debasement helps you to make investment decisions and understand how important investing is to your financial future.

What Is Currency Debasement?

Think of currency debasement as making money worth less over time. Imagine you have a chocolate bar that you split into 10 pieces. If you split it into 20 pieces instead, each piece becomes smaller. Each piece contains less chocolate than before so you need more pieces to have the same value.

That's similar to what happens when a government prints more money – each unit of currency becomes worth less than before.

Why Should You Care?

As business professionals and investors, understanding currency debasement is crucial because it can affect:

• Your savings (the money in your bank account)

• Your investments (stocks, bonds, or property)

Real-World Example

Let's say you save €1,000 in your bank account. If your country experiences currency debasement, that same €1,000 might only buy you what €900 could buy last year. This means your money has lost some of its purchasing power.

Crucially, it is difficult for you to notice the change because your account contains the same number of euros - in this case €1,000.

People who keep too much money in their bank accounts believing that it is ‘safe’ are mistaken - often it is losing value every day.

Just because the numbers do not change does not mean that the value does not change!

Protecting Your Money

The good news is that there are several ways to protect your money from losing value. Here are some smart strategies:

Diversify Your Investments Don't put all your eggs in one basket! Spread your money across different types of investments. These could include:

• Fixed Income (bonds)

• Equities (stocks)

• Mutual Funds / Exchange Traded Funds (ETFs)

• Real Estate (Property)

• Commodities (Gold, Silver oil etc)

• Alternative investments (Art, antiques etc)

• Cryptocurrencies (understand the risk before investing)

Business English Vocabulary Focus

Here are some key terms to remember:

• Currency debasement: The process of making money worth less

• Purchasing power: How much you can buy with your money

• Diversification: Spreading investments across different areas

Conclusion

Understanding currency debasement isn't just about protecting your money – it's also about being a more informed business professional who can discuss these important topics confidently in English.

We will examine some of the investing options in upcoming newsletters. However, next week we will cover a common misconception - debasement of currency is not the same as inflation (although they are related).

Poll: What stops you from investing?

Investing is a big decision for most people. Often the hardest part is getting started. What is the major reason that stops you from investing? Or are you already an investor? ake part in our poll below.

Word of the Day: Matter

We chose the word “matters” as the title for this newsletter, titled “Money Matters.”

Is this word used as a third-person verb or a plural noun?

Interestingly, it can function as both! When a single word has two distinct meanings, it creates a play on words, where a sentence or phrase can have both interpretations.

Let’s explore both meanings of “matters” in this context.

1. Matter - noun - countable - the situation being dealt with or discussed, a topic

2. Matter - verb - to be important or have significance

Understanding the Play on Words:

In our newsletter title, "Money Matters," we're using both meanings at once! This makes it a play on words because:

1. It tells you this is about the financial topic we are discussing (money matters = financial affairs)

2. At the same time, it reminds you that money is important (money matters = money is significant)

This type of wordplay helps make language more interesting and memorable. When you understand both meanings, you can appreciate how clever the title is - it tells you both what the newsletter is about and why you should read it!

Can you think of other examples where one word might have two meanings in business English?