Currency Devaluation and Asset Positioning

Executive Summary

Several factors are creating downward pressure on major currencies, including the US dollar and Canadian dollar. Here's what matters:

• The yen carry trade is unwinding, creating selling pressure on the US dollar as investors close positions
• China's gold accumulation has accelerated, affecting currency valuations and reserve strategies
• US monetary policy shifts may prioritize exports and debt management over currency strength
• Treasury selling pressure from major holders like Japan and China reduces demand for US dollar assets
• The Canadian dollar moves closely with the US dollar, so these factors affect Canadian business owners directly

What this means: Currency devaluation reduces purchasing power over time. The question isn't whether currencies will change:it's how your assets respond to those changes.

This article explains what's happening, why it matters, and how to position corporate and personal assets to protect purchasing power.

Why This Matters for Business Owners

Currency devaluation doesn't happen overnight. It happens gradually, and by the time it's obvious, positioning opportunities have narrowed.

For incorporated business owners, this affects:

• Corporate surplus sitting in cash or cash-equivalent investments
• Personal savings in GICs, bonds, or conservative funds
• Financing structures with variable rates that could rise with currency pressures
• Purchase plans for operating companies, real estate, or other assets

The goal isn't to predict exact timing or magnitude. The goal is to understand what's happening and position assets accordingly.

What's Driving Currency Changes

1. Yen Carry Trade Unwinding

The yen carry trade involves borrowing in low-interest Japanese yen to invest in higher-yielding assets, often denominated in US dollars. When this trade unwinds:as it has been:investors sell US dollar assets to repay yen loans, creating downward pressure on the US dollar.

What's happening: The Bank of Japan raised rates in 2024, narrowing the interest rate gap with the US Federal Reserve. This reduced the profitability of carry trades, prompting investors to close positions. The yen appreciated sharply against the US dollar, and this unwinding process continues.

Why it matters: As carry trades unwind, selling pressure on US dollar assets increases. This affects not just currency markets but also equity and bond markets as investors liquidate positions.

2. China's Gold Accumulation

China has been accumulating gold reserves for decades, with acceleration in recent years. By late 2025, China's official gold holdings reached over 2,300 tonnes, with some estimates suggesting total holdings (including unreported reserves) may be significantly higher.

What's happening: China's gold accumulation serves multiple purposes: diversifying away from US dollar reserves, backing its currency, and reducing reliance on dollar-denominated assets. This affects how markets view both the Chinese yuan and the US dollar.

Why it matters: When major economies shift reserves from US dollars to gold, it reduces demand for dollar assets. This creates downward pressure on the US dollar over time. The proportion of gold relative to money supply matters:China's gold-to-money-supply ratio differs from the US, affecting relative currency strength.

3. US Policy Priorities

US monetary and trade policy may prioritize exports and debt management over maintaining a strong dollar.

What's happening: A weaker dollar makes US exports more competitive and can reduce the real value of outstanding government debt. Policy shifts toward trade competitiveness and debt management may accept:or even encourage:dollar weakness.

Why it matters: If policy priorities shift away from maintaining dollar strength, currency devaluation becomes more likely. This affects not just the US dollar but also currencies closely tied to it, including the Canadian dollar.

Note: The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) and Strategic Bitcoin Reserve initiatives suggest broader shifts in how the US views reserve assets, potentially including digital assets alongside traditional reserves.

4. Treasury Selling Pressure

Major holders of US Treasury bonds, including Japan and China, have been reducing holdings or signaling willingness to do so.

What's happening: Japan's finance minister has described US Treasury holdings as "a card" in trade negotiations. China's Treasury holdings declined throughout 2024 and into 2025. When major holders reduce Treasury purchases or sell holdings, it reduces demand for US dollar assets.

Why it matters: Reduced demand for Treasury bonds puts downward pressure on the dollar. This selling pressure compounds other factors creating currency weakness.

5. Money Supply Effects

The effects of money supply expansion often take time to fully materialize. What matters isn't just the amount of money created:it's when that money affects purchasing power.

What's happening: Money supply expansion creates currency devaluation over time, but the timing isn't immediate. We may be seeing the effects of earlier expansion now, as currency weakness becomes more apparent.

Why it matters: Currency devaluation from money supply expansion is often gradual but persistent. Understanding this helps explain why positioning matters now, before effects fully materialize.

The Canadian Dollar Connection

The Canadian dollar moves closely with the US dollar due to trade relationships, economic integration, and shared monetary policy influences.

What this means: Factors affecting the US dollar also affect the Canadian dollar. Trade policy uncertainty, interest rate differentials, and economic performance differences can create additional pressure on the Canadian dollar beyond US dollar weakness.

For Canadian business owners: Currency devaluation affects purchasing power for both corporate and personal assets. This isn't just about US dollar exposure:it's about how Canadian dollar assets respond to broader currency changes.

How to Position Your Assets

These recommendations focus on protecting purchasing power over time. They're general guidance, not personalized advice. Work with your CPA, lawyer, and advisor to determine what's appropriate for your situation.

1. Reduce Cash and Cash-Equivalent Exposure

What to do: Keep minimal cash positions. Avoid GICs, bonds, Treasury securities, and conservative investment funds that hold primarily bonds.

Why: Cash and cash equivalents lose purchasing power during currency devaluation. Even if nominal returns are positive, real returns (after accounting for currency effects) may be negative.

For corporations: Invest corporate surplus in real assets rather than leaving it in cash or cash-equivalent investments. This includes equity investments, real estate, or other assets that maintain value relative to currency changes.

For personal assets: Same principle applies. If you have cash or conservative investments, consider shifting to assets that protect purchasing power.

Important: This assumes you have an appropriate risk tolerance and investment profile. Don't eliminate all conservative investments if your situation requires them:but understand the trade-offs.

2. Accelerate Planned Purchases

What to do: If you're planning to purchase an operating company, real estate, or other real assets, consider doing so now rather than waiting.

Why: Currency devaluation makes real assets more expensive over time in nominal terms. Purchasing now locks in today's prices before currency effects fully materialize.

For corporations: If you're planning acquisitions or real estate purchases, accelerating these can protect purchasing power.

For personal assets: Same principle applies to personal real estate, business interests, or other real assets.

Important: Don't make purchases solely for currency reasons. Only accelerate purchases that make sense for your business or personal situation.

3. Invest in Equity Markets Despite Volatility

What to do: Invest in equity markets even if volatility increases due to currency-related market movements.

Why: Equity investments represent ownership in real assets (companies, real estate, etc.). Over time, these assets maintain value relative to currency changes better than cash or bonds.

For corporations: Corporate equity investments can protect purchasing power while maintaining tax deferral benefits.

For personal assets: Same principle applies. Equity investments, whether through mutual funds, ETFs, or direct holdings, can protect purchasing power.

Important: Volatility may increase as currency markets adjust. This is expected and doesn't change the long-term benefit of holding real assets rather than cash.

4. Restructure Variable Rate Financing

What to do: Significantly reduce or eliminate variable rate financing. Restructure to fixed-rate financing, locking rates for 3-5 years.

Why: Currency devaluation often leads to higher interest rates as central banks respond to currency weakness and price changes. Variable rate financing exposes you to rising rates.

For corporations: Review operating lines of credit, business loans, and any variable rate financing. Restructure to fixed rates where possible.

For personal assets: Same principle applies to mortgages, personal lines of credit, and other variable rate debt.

Important: Locking fixed rates now, while rates are still manageable, protects against future rate increases. This is especially important if your balance sheet can support fixed-rate debt.

5. Consider Borrowing to Invest (If Appropriate)

What to do: If your corporate or personal balance sheet is strong (low debt-to-asset ratios, stable cash flow), consider borrowing at fixed rates to invest in real assets.

Why: Borrowing at fixed rates now, while rates are still affordable, and investing in assets that protect purchasing power can be beneficial during currency devaluation.

For corporations: Corporate borrowing to invest in equity funds, real estate, or operating companies can protect purchasing power while leveraging fixed-rate financing.

For personal assets: Same principle applies, but only if your financial situation supports it.

Important: This only makes sense if your balance sheet is strong. Don't increase leverage if you're already highly leveraged or have unstable cash flow.

6. Diversify with Gold and Precious Metals

What to do: Add exposure to gold and precious metals to your investment portfolio.

Why: Gold and precious metals historically maintain value during currency devaluation. They're real assets that aren't tied to any single currency.

For corporations: Corporate holdings of gold or precious metals can diversify corporate investment portfolios and protect purchasing power.

For personal assets: Same principle applies. Gold ETFs, physical gold, or precious metals funds can provide diversification.

Important: Gold and precious metals are volatile and don't generate income. They're diversification tools, not primary investments. Use them as part of a broader strategy.

Decision Checklist

This article might resonate with you if:

• [ ] You have significant corporate surplus in cash or cash-equivalent investments
• [ ] You have personal savings in GICs, bonds, or conservative funds
• [ ] You have variable rate financing (corporate or personal)
• [ ] You're planning to purchase operating companies, real estate, or other real assets
• [ ] Your investment portfolio lacks exposure to real assets (equities, real estate, commodities)
• [ ] You want to protect purchasing power over the next 3-5 years

If several of these apply, consider discussing your situation with your CPA, lawyer, and advisor to determine appropriate positioning strategies.

Important Notes

This is general guidance, not personalized advice. Currency markets are complex, and timing is uncertain. What matters is positioning assets appropriately for your situation, not trying to predict exact currency movements.

Work with professionals. Asset positioning decisions involve tax, legal, and investment considerations. Coordinate with your CPA, lawyer, and advisor to ensure strategies align with your overall situation.

Risk tolerance matters. These recommendations assume appropriate risk tolerance. Don't eliminate all conservative investments if your situation requires them:but understand the trade-offs.

Mutual funds are offered through WhiteHaven Securities Inc. Investment products and related services are provided through WhiteHaven Securities Inc. Insurance products and certain other services are provided through iAssure Inc., an independent firm in the insurance of persons and in the group insurance of persons. These activities are neither the business nor the responsibility of WhiteHaven Securities Inc.

Fact-Check and Sources

This article discusses general economic trends and market developments. Key points are based on:

• Yen carry trade unwinding: Bank of Japan policy shifts in 2024-2025, narrowing interest rate differentials with the US Federal Reserve
• China's gold accumulation: People's Bank of China reserve data showing consistent accumulation through 2024-2025
• US policy priorities: Trade policy developments and monetary policy considerations affecting currency strength
• Treasury selling pressure: Data showing reductions in US Treasury holdings by Japan and China
• Canadian dollar correlation: Trade relationships and economic integration between Canada and the US

These are ongoing developments, not predictions. Currency markets are influenced by many factors, and outcomes are uncertain. This article explains general trends and positioning considerations, not specific forecasts.

Next Steps

If this article resonates with your situation:

• Assess your current positioning: Review corporate and personal assets. How much is in cash or cash-equivalent investments? What's your exposure to variable rate financing?
• Coordinate with your team: Discuss asset positioning with your CPA, lawyer, and advisor to ensure strategies align with your overall situation
• Consider timing: If you're planning purchases or financing changes, consider accelerating these decisions
• Review investment structure: Ensure your corporate and personal investment portfolios include real assets that protect purchasing power

If you'd like to discuss your specific situation, request a structure review to see if there's a fit.