In November of 2018, I packed my bags and moved to Shenzhen, China. Unfortunately, this happened to be in the midst of blistering political drama and trade tensions between the World’s largest economies, China & the United States (US). I worried how this would affect me, my salary, and my future. I realized that I my new salary was going to be paid in ChineseRMBand I was now exposed to a new, well new to me, risk: currency risk.
What is Currency Risk
Currency Risk (aka Exchange Rate Risk) is the change of value between the currency of one country (China) & another (US). In business, it will affect companies that have assets in multiple countries. Unfortunate for me, it can also affect expats who hold assets in other countries (i.e. bank accounts & salaries). For example, when I started looking for jobs in China in January 2018, 100 RMB was worth $15.90. By the end of December 2018, 100 RMB was equal to $14.53. That is -$1.36 (-9%) less than the beginning of the year. Some may say that this isn’t that big of a deal. Well let’s translate this to the average ESL Teacher Salary.
Lets assume you are making 15,000 RMB, or $2,384.74, per month teaching at an English Training Center in China. You started on January 31, 2018. The exchange rate, at the time, was 1 (USD) to 6.29 (RMB). Now fast forward ten months to October 31,2018. That same 15,000 RMB salary is now worth $2,152.08 (-$232.66 or -9%). Again, some may think this isn’t that much money, but how many jobs would you accept if you knew you were going to recieve a ‘reverse raise’ though-out the year? That $232 could have made a student loan payment or bought a share of an ETF. This scenario is something that affects expats and foreigners everyday. Fortunately, this risk goes both ways. For example, if you were an American living in China but getting a salary in US dollars (USD), you just got a 9% raise. Keep in mind, you will only feel the full effect of fluctuations in currency if you are sending money across borders. If you earn and spend your money in the same country, your exposure is minimized to almost nothing. Some would even suggest holding the undervalued currency until the Exchange rate changes.
What can we do about it?
The quick answer to this question is that there is not much to do about it. Unfortunately when you invest your time in being employed abroad, you are also investing in the stability of the country’s currency as well. Here are a few questions you should have the answer to before you work abroad.
- What is the current exchange rate? What has it been historically?
- Are there any political or economic issues that could affect the Exchange rate while you are abroad (i.e. Trade War)?
- What is your plan to move your assets to another currency, if possible?
- What do you think will happen next? ( Be careful with this, no one REALLY knows for sure).
Now for me, I’m a man of averages. I will continue with life as usual and send money ‘back home’ to invest, save, and pay bills (Student Loan, Google FI & Property Insurance) even when the EX Rate isn’t in my favor. I believe that overtime, I’ll make money in times when the EX rate is in my favor and lose money when it isn’t, but overtime it will average out.