W2_ChidiOkocha_Savings in local currency (Naira), US dollars or Gold.

1.  Problem Definition

According to a popular quote, 'a dollar saved is two dollars earned'.  I intend to start a long term savings program. I'm intend to use this write up to determine the best currency to hold my savings in.

2.  Feasible Alternatives

There are a few alternatives to consider:

1. Hold my long term savings in local currency (Nigerian Naira)

2. Hold my savings in the current world's reserve currency, US dollars

3. Hold my savings in ounces of gold.

3.   Develop the Outcomes for each Alternative

      The definition of savings is money set aside for future use.  The real value of money is measured by its purchasing power.  It therefore follows that whatever money I save must retain its value in the future to be really useful.  To measure purchasing power, we will factor in a price index such as CPI into a currency over a period of time.

1.  Analysing the CPI Inflation effect on the US dollar

2. Analysing the CPI Inflation effect on the Nigerian Naira 

3. Analysing the CPI Inflation effect on the Gold

Currency/Year	1960	2012	% (Decrease)/ Increase in Purchasing Power
Home Price  in USD ($)	58,600.00	290,000	(395)%
Median Home Price in (NGN)	41,857.98	46,400,000	(110,751)%
Home Price in Gold Ounces	1,674.29	161.11	90.38%

Table showing average median home price in 1960 compared to the price s today.

4. 4.  Acceptable Criteria

Acceptable criteria for evaluation will be by determining which of the currencies in question is least affected by inflation or CPI

5.    Analysis and Comparison of the Alternatives

From the tables above, the US dollar has been heavily hit by inflation and the purchasing power continues to decrease daily.

The trend for Nigerian naira appears worse as the cumulative decrease in purchasing power has between 1960 and today is a whopping 110,751% using median house price example.

Gold on the other had has showed relative stabilty and in some cases increase in purchasing power

6.    Select the Preferred Alternative

Based on the analysis above, gold is relatively stable ad retains purchasing power over a long period of time and its therefore my choice of currency for long term savings.

7.    Performance Monitoring & Post Evaluation of Result

To ensure the accuracy of this testing, I will continually track the purchasing power parity of gold against the other currencies to determine whether I made a good decision.

References:

Alao, O. A. (2010). Nigerian Naira Cross Exchange Rates: A VAR Approach, Retrieved from 
http://www.eurojournals.com/ajsr_12_14.pdf

Emeka, C. (2012). Nigeria: Inflation spikes, Naira recoils and T-bills sell continues

. Retrieved from http://www.afripol.org/emeka-chiakwelu/item/601-nigeria-inflation-spikes-naira-recoils-and-t-bills-sell-continues.html

Carlos, M. (2012). Investors Unable To Access Assets In Coming Collapse, Retrieved from 
http://alternativeeconomics.wordpress.com/2012/08/30/investors-unable-to-access-assets-in-coming-collapse/