How to Earn Double Digit Yields on Cash
Obviously, with T-bills in the sub 1% range, it’s not mathematically impossible to earn double digit yields on cash balances in US dollars.
As I was reading a Financial Times article tonight about the Chinese economy, the following chart made me stop and wonder if maybe the Chinese Yuan wasn’t as fixed to the dollar as I thought:
The Chinese Yuan is generally fixed vs. the dollar. It was fixed against the dollar for the first half of the decade. And it has been fixed for the last year. But between mid ‘05 and mid ‘08, the dollar slid by 21% against Yuan. At least that’s what Google says:
Chinese interest rates are considerably higher too, averaging 6.3% over this time period for overnight rates, according to the site that published the below data.
Which made me wonder how much one would have earned buying Yuan with US Dollars in mid 05, and selling in mid 08, investing the balance at the above Chinese rates. My simple calculations below work to 13.3%. Pretty good for holding cash in a strong balance sheet country. One big caveat: I don’t know how hard it is to actually convert the gains back to dollars.
An editable version of the above spreadhseet is available here.