The U.S. dollar (USD) is the world’s benchmark fiat currency. It’s also the most liquid of all fiat currencies. (Fiat currency is money that has no intrinsic value and is declared legal tender by a government. The Japanese yen and Australian dollar are other examples of fiat currency.)
When an economic crisis hits, demand for USD usually jumps. This is why the U.S. dollar is widely described as a store of value or a safe haven. (This means that USD is considered a currency that you can relatively confidently store your wealth in.)
In extreme economic and financial meltdowns, demand for USD can actually outpace traditional store-of-value assets like gold and bonds. This was particularly true during the 2020 coronavirus pandemic, for example.
AUD losing value against the USD between 2018 and 2020 (TradingView)
There are many ways to convert your local currency into U.S. dollars. (Or, if not into the U.S. dollar itself, then at least into a financial instrument that can track its performance.) This conversion is called foreign exchange—or forex for short. Below, we at Nugget’s News highlight some popular ways to do these forex conversions.
Buy USD-Backed Stablecoin Cryptocurrencies
Want a simple way to gain exposure to the value of the U.S. dollar? Buy a type of stablecoin known as a fiat-collateralised stablecoin. (For those unaware, stablecoins are cryptocurrencies that are designed to maintain a stable value.)
USD-backed stablecoins are very popular in the crypto space. For this reason, you can buy them from basically all crypto exchanges as well as cryptocurrency brokers.
The most common USD-backed stablecoins are tether (USD₮), TrueUSD (TUSD), USD Coin (USDC), Paxos Standard (PAX), Binance USD (BUSD), and Gemini Dollar (GUSD).
On crypto exchange FTX, you can convert other fiat currencies like AUD to USD. When on your FTX wallet, hit the ‘CONVERT’ button next to the currencies. Your local currency will be converted into USD-backed stablecoins using FTX’s live exchange rate.
To get AUD onto FTX, you have to make an international money transfer through the SWIFT international payment network. At the time of writing, FTX plans to soon enable domestic money transfers for Australians.
The below video by Nugget’s News founder Alex Saunders shows you what you need to know about using FTX. (More videos like this are on the Nugget’s News YouTube channel.)
Another way for Australians to buy USD-backed stablecoins with their AUD is through a local crypto exchange called CoinSpot. Check out How to Buy Cryptocurrency on CoinSpot Exchange to learn about opening an account and buying a stablecoin like USDC or USD₮.
Buy a USD Exchange-Traded Fund (ETF)
Buying an ETF on your local stock exchange is an easy way to get exposure to the U.S. dollar’s performance relative to your local fiat currency. (Note, buying a USD ETF means you don’t actually buy U.S. dollars. Instead, you get exposure to its performance in the forex markets.)
Say you live in Australia and want to convert some of your Australian dollars (AUD) into USD. And so, you invest in a USD ETF. If the USD appreciates 10 per cent against the AUD, the value of the ETF will also go up by close to 10 per cent. (It won’t go up by the full 10 per cent because the ETF provider deducts fees and expenses from the market rate.)
Buying a USD ETF is attractive because it is simple and convenient. For this convenience, though, the ETF issuer does take a cut in the form of management fees. This is on top of costs you have to pay in order to buy and sell units in the ETF (e.g., brokerage fees).
On the Australian Securities Exchange (ASX), the biggest USD ETF is the BetaShares U.S Dollar ETF. The ASX ticker code for the BetaShares U.S. Dollar ETF is ‘USD’.
Because ETFs are listed on stock markets, there’s a limit to when you can buy or sell them. The ASX, for instance, is open for just 30 hours in a typical week. This is very different to crypto exchanges, which are open 24/7.
Buy USD at a Bank or Forex Provider
The vast majority of banks will let you buy U.S. dollars with AUD or another local currency. A lot of them will perform the forex transaction for you even if you aren’t one of their account holders. These days, getting into USD through the bank can be done online or in-branch.
Importantly, when it comes to buying USD through banks, it’s notoriously expensive relative to other forex venues. The exchange rates offered by banks are usually very uncompetitive.
On the plus side, buying USD through a bank is very convenient. It also saves you the time and hassle of making an account with an online forex service provider.
Tips for Buying U.S. Dollars With Your Local Currency
- Compare USD exchange rates between forex providers. Do this on the day you wish to buy USD. That’s because exchange rates change daily.
- Check transaction fees and commission rates. Do this before you go ahead with your USD purchase. It can save you a lot of money.
- Convenience means worse exchange rates. Whilst it’s very easy to buy USD from airports and banks, just know that the rates you get are notoriously poor.
- Use a cost-effective payment solution. If you’re an Australian buying USD online, using payment solutions like BPAY means you avoid credit card transaction fees.
Know the Costs Involved With Buying USD
Banks, forex brokers, and other financial service providers that offer foreign currency exchange can make lots of money from forex conversions. We explain how below.
Understanding foreign currency exchange rates
When you see the exchange rate between USD and other local currencies on the news or a finance website, you aren’t seeing the exchange rate that you’ll get.
The rate you are seeing is called the interbank exchange rate. This is the rate that banks use when they’re trading large amounts of foreign currencies with one another.
The foreign exchange rate that you get will always be lower than the interbank rate. Why? Because forex service providers add a margin and/or charge transaction fees and commissions. If they didn’t do this, they’d go out of business.
Let’s clear things up with an example. You’re an Australian looking to get rid of your Australian dollars (AUD) for U.S. dollars (USD). You’re watching the news and see that 1 AUD can get you 0.65 USD.
The above rate is the interbank rate. You cannot get this rate. What you can get is the one displayed by your bank or some other forex broker. In this example, the AUD-USD exchange rate that you’d be able to get would likely be somewhere between 0.61 USD and 0.63 USD.