Saving: a guaranteed loss-making activity

I was cleaning up recently. In addition, I came across a box with some things that I had long forgotten I still had. It was some stuff that I had received thirty years ago, when I came to the Netherlands.

It was nice to go back in time using those objects, to the beautiful village of Zwartemeer in the municipality of Emmen. A trip down the memory lane by cleaning up, who would have thought.

There were some things from my first basketball club, a pen from Bosnia - one of the few items I still have from my life before the war - and some other priceless trinkets. It also contained one of the perhaps most useless products in 2022.

I held that thing in my hands and knew exactly when I got it. The logo of the company that adorns it has long since disappeared, the company itself has not. The little blue object itself stood for times long gone and times that, I believe, will not return anytime soon.

In short, it is a relic that I had in my hands. I also suddenly had to think of several similar objects that I had left behind in Bosnia. One was shaped like a windmill. I thought that was wonderful, not knowing that not much later I would see windmills in real life. 

What am I talking about? A piggy bank!

That must be one of the most useless products by now, with the savings rate at 0% and inflation at around 10%. Even when inflation halves, saving will remain a guaranteed loss-making activity. This appears to be the case until the interest on savings exceeds inflation (for the sake of convenience, we forget the capital yield tax). And that could just take years.

Last week, a board member of the US central bank said it will be years before the currency depreciation in the US returns to 2% a year. And that in the knowledge that the central bank is jacking up interest rates relatively hard. Our central bank won't push interest rates to 0% until sometime in September and before that, she hastens to say that every step after that will be small and she will think three times before the bank takes that step. So on our side of the ocean it might just take longer. No, every coin you throw in a piggy bank, now and in the future, is doomed to lose quite a bit of value fairly quickly.

What was once a piggy bank and the associated savings account, for example for your children, is now an investment fund or an investment portfolio. Investing still involves a chance of gain and a chance of loss, bearing in mind that the longer the investment horizon – and for your children it is far – the less likely the loss is. Saving, on the other hand, guarantees a loss, with the only unknown factor being how big that loss will be. When I look at the plans of central banks such as the European Central Bank (ECB) for the near future and when I look at their thinking and modus operandi, I have a strong feeling that this will remain so for a long time to come.

Edin Mujagic

Edin Mujagić is an economist and manager at Beleggingsfonds Hoofbosch. He focuses on global central banks, and in his blogs he writes mainly about developments in interest rates and inflation. He has also written several books.

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