Currency Exchange & Hedging Strategies
One of the biggest challenges for diaspora Africans is dealing with currency volatility. The difference between the currency you earn abroad and the currency you spend or invest in at home can significantly impact your wealth.
Understanding the Challenge
For example, if you earn in euros or dollars but your investment is in naira, cedis, or CFA francs, currency depreciation can erode returns quickly. In 2024, the Nigerian naira lost over 20% of its value against the dollar, meaning a significant drop in purchasing power.
Strategies to Manage Currency Risk
• Forward Contracts: lock in an exchange rate for future transfers to avoid surprise depreciation.
• Multi-currency Accounts: hold funds in both home and foreign currencies to optimise timing of transfers.
• Local Bonds or Securities: investing in local debt instruments indexed to foreign currency can hedge risk.
• Currency Diversification: spread investments across several currencies to reduce exposure to any single one.
Practical Tools for the Diaspora
Digital platforms like Chipper Cash, WorldRemit, and TransferWise offer better exchange rates than traditional banks. Some diaspora-focused funds hedge currency exposure for investors, so partnering with these can reduce risk without needing deep forex knowledge.
