Debasement Trade – How to Bet on Falling Currencies

Currency debasement is an increasingly popular concern in markets and many traders are curious about the best ways to trade it.

Is it gold? Other currencies? Commodities? Simply hanging out in equities? More complex rates trades?

We’ll take a look at the various options.

Key Takeaways – Debasement Trade 

• Gold
  • The classic hedge against monetary debasement, not inflation.
  • Performs best when real rates fall, debt sustainability is questioned, and institutional trust erodes.
  • Weak when discipline is credibly restored.
    
• Broad or Targeted Commodities
  • Direct claims on real economic inputs.
  • Energy and industrial metals lead early-to-mid debasement.
  • Agriculture tends to outperform when inflation turns socially and politically destabilizing.
    
• 10s–30s Curve Steepeners
  • A policy-credibility trade.
  • Debasement typically shows up as long-end inflation risk and fiscal dominance while the front end is suppressed.
    
• Equities (Nominal Assets)
  • A partial hedge.
  • Works in moderate debasement via nominal earnings growth.
  • Equities are imperfect currency hedges because they fail in severe currency breakdowns when costs outrun pricing power and cost controls emerge as a political tactic.
    
  • Being in equities only is convenient, but it doesn’t protect you fully
• Inflation-Linked Bonds (TIPS / ILBs)
  • Mechanical CPI hedges.
  • Effective only as long as inflation data is trusted.
  • Vulnerable when governments massage indices, then the payout lags.
    
• Foreign Equities in Higher-Credibility Regimes
  • Relative debasement trade.
  • Countries with lower debt, external surpluses, or commodity backing are less at risk. They tend to lose purchasing power more slowly.
    
• Commodity-Linked FX (CAD, AUD, BRL, etc.)
  • Terms-of-trade hedges.
  • Resource-backed currencies absorb debasement better than purely financial ones, but remain cyclical.
    
• Real Estate
  • Performs best under financial repression (rates below inflation).
  • Vulnerable to taxation, regulation, and immobility.
    
• Farmland / Timberland
  • Real assets with low financial correlation. Strong historical performance during inflation, scarcity, and political stress.
    
• Gold Miners / Resource Equities
  • Operational leverage to debasement.
  • Outperform when output prices rise faster than input costs.
  • Underperform when labor, energy, or taxes surge.
    
• Bitcoin / Crypto
  • A type of parallel monetary system where the main criticism is its high volatility and lack of intrinsic value.
  • Works best when debasement becomes overt, political, or confiscatory.
  • More a hedge against institutional failure and – to this point, excess liquidity – than inflation.
    
• Negative Real Yield Carry Trades
  • Borrow in debasing currencies to fund real or foreign assets, or even nominal assets that are good stores of value.
  • Fragile when volatility spikes.
    
• Pricing-Power Equities
  • Firms that reprice faster than costs (energy infrastructure, staples, defense, regulated utilities). Requires security selection, not standard beta.
    
• Strategic Inventory / Stockpiling
  • Holding real goods benefits from rising replacement costs.
  • Typically a late-cycle phenomenon, when there’s a run on a certain good, inflation is high, or even bubble behavior.
    
• Short Long-Duration Nominal Bonds
  • Long bonds typically fail once markets doubt a currency will be defended.
• We give an example portfolio approach to put this all together at the end of the article.

1. Gold

Gold is the classic hedge against monetary debasement – not cyclical inflation.

Gold tends to improve in times of falling real rates (financial assets yield less in after-inflation terms). 

It also tends to do well when political and geopolitical conflict are rising, when there’s less trust in the domestic currency or less trust between countries and honoring financial commitments.

When policymakers credibly reassert monetary discipline, this tends to be a weaker time for gold.

The 1981-early 2000s period for gold was an elongated bear market.

Ways to buy include ETFs, futures, gold equities (contain operational risk), and the physical market.

It has a track record going back thousands of years and has been used as money throughout time.

The US dollar was pegged against gold under the Bretton Woods system from 1944 to 1971.

2. Commodity Complex (Broad or Targeted)

Commodities are a direct claim on real inputs in the economy.

Energy and industrial metals tend to outperform in early-mid debasement, while agricultural commodities shine when debasement spills into social stress.

3. 10s-30s Curve Steepeners

A policy credibility trade.

Debasement generally expresses itself as long-end inflation risk + fiscal dominance, even if the front end is suppressed – which is commonly done to help private sector credit creation and financial asset markets.

Central bankers can protect their currency by keeping policy tight, but this tends to hurt domestic financial conditions.

10-30s steepening is also a classical sign of debasement when it goes along with other signs (gold, commodities, nominal equity gains).

If gold is flying but 10s-30s steepening trade isn’t working, for example, we may not be in a full-on debasement but more of a gold-centric move.

4. Equities (Stocks)

Equities are a partial hedge as a nominal asset class.

They work well in moderate debasement but fail in severe currency collapse.

In that kind of case, costs outrun pricing power and capital controls appear (which tend to create distortions rather than alleviate any problems).

5. Inflation-Linked Bonds (TIPS / ILBs)

A mechanical hedge against CPI debasement.

Inflation-linked securities protect purchasing power only if the inflation index is trusted.

But this erodes late in the cycle.

Governments also have a history of trying to rig inflation data to make regimes look better and, as a secondary effect, to limit payments on inflation-linked bond structures.

While more common in emerging markets, it can also happen in developed markets.

6. Foreign Equities in Stronger-Credibility Regimes

Not all currencies debase at the same rate.

Owning equities in countries with lower debt burdens, external surpluses, or commodity backing is a relative debasement trade.

7. Commodity-Linked FX (CAD, AUD, BRL, etc.)

A terms-of-trade hedge.

Currencies linked to real resources – because a lot of their national income is dependent on exports of these commodities – tend to absorb debasement better than purely financial currencies.

8. Real Estate

Real estate works best when debasement is paired with financial repression (rates held below inflation).

Real estate, however, is nailed down and is a common target when more tax revenue needs to be raised.

9. Farmland / Timberland

Farmland and timber are one of the purest real asset plays.

Low correlation to financial assets, direct exposure to food scarcity and input inflation, and historically strong in political stress.

10. Gold Miners / Resource Equities

Operational leverage to debasement.

They outperform physical commodities when input costs lag output prices – and underperform when labor, energy, or taxes rise.

Not a pure bet on gold or the commodity itself.

11. Bitcoin / Crypto as a Parallel Monetary System

A credibility escape valve, not an inflation hedge in the short run or even medium term.

Works best when debasement becomes overt, political, and confiscatory, and capital mobility matters more than the volatility that comes with these.

Remember that bitcoin or crypto doesn’t have to be a big part of a portfolio to benefit while protecting yourself against the volatility.

12. Negative Real Yield Instruments (Carry Trades)

Borrow in aggressively debased currencies to fund real or foreign assets.

This is the purest expression of financial repression, but fragile if volatility spikes or rates rise a lot.

13. Pricing-Power Equities (Monopolies, Oligopolies)

Companies that can reprice faster than costs: energy infrastructure, consumer staples, defense, regulated utilities.

This is equity selection, rather than traditional beta.

14. Strategic Inventory / Stockpiling

Often overlooked: firms and investors who hold real goods benefit as replacement costs rise.

This shows up late-cycle.

It’s common during bubbles as well.

15. Short Long-Duration Nominal Bonds

Long bonds only work when markets believe the currency will be defended.

Otherwise they’re not going to want to hold bonds for decades, as bonds are a promise to deliver money.

In the US, Treasury bonds go out to 30 years. So, bought fresh off the auction, it’s represents 30 years of faith in being paid back in quality money.

Once that belief cracks, they are structurally impaired.

Zooming Out (the regime insight)

Debasement trades change character over time:

• Early – equities, commodities, curve steepeners
• Middle – gold, TIPS, FX dispersion, curve steepeners
• Late – capital flight assets (gold offshore, crypto, real assets with mobility)

It Requires a Diversified Answer

The mistake traders and investors make is assuming one hedge fits all phases.

The optimal posture is layered optionality, not a single bet.

Gold, for example, is an easy way to do things at 5-10%+ of a portfolio, but it’s not the only way.

Debasement is a process rather than a single explosive moment.

It unfolds through stages. As far as market outcomes, has different winners, different risks, and different policy responses. 

Early on, debasement is subtle and often denied. Real rates drift lower, fiscal deficits widen, asset prices rise faster than wages, and the initial pop might even look like a good thing. 

In this phase, conventional assets (equities, credit, real estate) can appear to “work,” not because they preserve purchasing power perfectly, but because liquidity overwhelms fundamentals. 

Investors and traders who mistake this for stability often overcommit to nominal growth assets.

As the process matures, the character changes. Inflation becomes politically salient. 

Central banks face a tradeoff between credibility and solvency, and typically choose solvency. Printing is practically always the way out if it’s possible.

Hard falls are generally what occurs in cases when liabilities are denominated in a different currency and the lack the authority to change the rates, change the duration, change whose balance sheet it’s on, etc.

Iceland during the financial crisis was one example. Greece in 2012 was another (on the euro).

The Influence of Financial Repression

Financial repression emerges: yields are capped, regulation tightens, and savers quietly subsidize debtors. This is when real assets (commodities, gold, inflation-linked instruments, and selective foreign assets) begin to outperform. 

The goal here is defense against silent confiscation.

Late-stage debasement is structurally different. Trust erodes, not just in the currency, but in institutions, statistics, and rules. 

Inflation-linked bonds may not pay out the full amount if governments want to rig the inflation accounting.

Capital controls, windfall taxes, forced conversions, or moral suasion become thinkable, then normal. In these environments, traditional portfolio theory breaks down.

Liquidity, mobility, and jurisdiction matter as much as return. 

Assets that can move, hide, or reprice outside the domestic financial system – real assets, offshore exposure, alternative monetary networks – gain value precisely because they’re hard to control.

Multiple Answers

This is why picking one or a few things alone is insufficient. What’s required is diversification across debasement expressions: inflationary, financial, political, and institutional. 

Some hedges work when volatility is low and repression is high.

Others only work when disorder rises. 

Holding only one is a bet on timing, and timing is where most debasement strategies fail.

The deeper insight is that debasement is ultimately a policy choice, not an accident. 

When debts are too large to honor in real terms, currencies become more volatile and absorb the adjustment. 

Traders aren’t being asked whether debasement will occur, but how it will be distributed and who will bear it.

Layered optionality accepts this and keeps you prepared.

In markets we have to remain humble because many things are possible and we don’t know exactly.

We just have to be prepared so that when whatever happens it isn’t that big of a deal.

In debasement regimes, survival is about staying solvent, liquid, and adaptive long enough for the system to reset.

How to Turn This Into a Portfolio?

Let’s look at what kind of allocation this might give us conceptually.

We’ll do this in terms of four “sleeves,” each designed to protect against a different expression of debasement.

1. Credibility & Trust Hedge (15-20%)

Protects against loss of confidence in money and institutions.

Here’s what you can do here:

• Gold (10-15%) – Core anchor. Insurance against monetary disorder, falling real rates, geopolitical stress, and fiscal dominance. Low correlation to traditional assets.
• Bitcoin / Crypto (0.5-3%) – Small but asymmetric. A hedge against institutional failure, capital controls, and monetary discretion. Size modestly due to volatility. It doesn’t take much to feel crypto in a portfolio.
• Gold Miners / Select Resource Equities (3-5%) – Works when debasement lifts prices faster than costs, but not a substitute for physical gold.

Purpose: survives late-stage debasement when trust breaks.

2. Real Asset / Scarcity Sleeve (25-35%)

Protects against purchasing-power erosion and financial repression.

The main ones that fit this category:

• Broad / Targeted Commodities (10-15%) – Energy + industrial metals early. Agriculture later. Direct exposure to real inputs.
• Farmland / Timberland (5-10%) – Low correlation, slow-moving, politically resilient. Food and materials matter when money weakens.
• Real Estate (5-10%) – Works best when rates are capped below inflation. Vulnerable to taxes and regulation. Diversify geographically and structurally. This is also separate from a personal residence, but real estate for investment purposes.
• Strategic Inventory / Stockpiling (Optional, 0-X%) – Late-cycle hedge when replacement costs surge or shortages emerge.

Purpose: protects against silent confiscation via inflation.

3. Relative Value + Policy Dispersion (20-30%)

Exploits uneven debasement across countries and curves.

• Foreign Equities, Credit, and Bonds in Higher-Credibility Regimes (10-15%) – Countries with lower debt, surpluses, or commodity backing debase more slowly.
• Commodity-Linked FX (5-10%) – CAD, AUD, BRL as terms-of-trade hedges. Cyclical, but effective early-to-mid debasement. These don’t have to be explicit FX trades. They can be equities/credit/bonds in these currencies.
• 10s-30s Curve Steepeners (5-10%) – Expression of fiscal dominance and long-term inflation risk. Breaks only if discipline is restored. Could also be expressed via futures, if the trader has experience, such as long ZN futures, short UB futures.

Purpose: monetizes relative debasement, not collapse.

4. Nominal Growth with Pricing Power (20-30%)

Allows participation while debasement is still “manageable.”

• Equities (Broad Beta, Reduced Weight) – Nominal earnings growth helps early, but cap exposure.
  
• Pricing-Power Equities (10-15%) – Energy infrastructure, staples, defense, regulated utilities… firms that reprice faster than costs.
  
• Carry / Negative Real Yield Trades (Tactical, 0-5%) – Profits from repression. When rates are low relative to your yield in other things, this becomes more viable.

Purpose: avoids opportunity cost while debasement is gradual.

What’s Missing on Purpose

• Long-Duration Nominal Bonds – Not a great bet once faith erodes.
• Overconcentration in Any One Hedge – gold alone, equities alone, crypto alone, etc., are overly concentrated and don’t purely express the theme.

How This Portfolio Evolves by Regime

• Early Debasement – equities, commodities
• Middle Phase – gold, TIPS, FX dispersion matter more. Curve steepeners tend to work.
• Late Phase – mobility assets (gold, crypto, real assets outside the system) dominate

Example

So, a concrete example:

• Gold – 15%
• Bitcoin / Ethereum / Crypto – 1%
• Gold Miners / Resource Equities – 3%
• Broad / Targeted Commodities – 5%
• Farmland / Timberland – 7%
• Real Estate (Investment) – 5%
• Commodity-Linked FX Exposure (CAD / AUD / BRL) rolled into Foreign Credit & Equity Trades/Allocation (Higher-Credibility Regimes) – 20%
• 10s–30s Curve Steepeners – 6%
• Equities (Broad Beta, Reduced Weight) – 10%
• Pricing-Power Equities – 10%
• Inflation-Linked Bonds – 18%
• Carry / Negative Real Yield Trades – As needed
• Cash – Prudent reserve

Final Principle

This portfolio doesn’t predict how debasement unfolds.

Timing, in/out, good/bad, etc., is not easy to do.

It accepts uncertainty and spreads risk across:

• inflation vs. repression
• financial vs. political stress
• gradual erosion vs. sudden loss of trust

That is layered, diversified way of doing things.