by Sam Mattera, Benzinga

In these uncertain economic times, investors would probably like to maintain a large position of cash and cash equivalents.

Although equity markets in the US have been trending up for most of the fourth quarter, volatility has run fairly high, and the specter of another financial calamity hangs ominously around the markets.

Thus, it is perhaps not at all surprising that recent figures indicate that investors have increasingly pulled their capital from mutual funds in record numbers.

Yet, with the rise of currency trading, and increasingly aggressive actions on the part of central bankers, cash is not simply a conservative asset, free from risk.

Although daily currency trading carries the possibility of large losses, investors with tremendous cash positions may wish to consider diversifying their holdings into a variety of different currencies.

US Dollar

The US dollar remains the primary form of cash holding. In the wake of the 2008 financial crisis, the dollar rallied tremendously as investors around the world fled to the safety of the US dollar. The dollar remains the world’s reserve currency, and investors could flee to it once again in the event of another global crisis.

Still, the Fed has shown willingness to run the printing presses in recent years. Following the Fed’s two rounds of quantitative easing, the dollar index has declined in subsequent months. In the event of a third round of QE, the dollar could continue to move lower. Thus, investors alone might not wish to hold strictly US dollars.

Euro

The euro has received a bad reputation in recent years as the crisis in Europe has intensified. Currently, the euro is trading against the dollar at $1.30 and has traded lower on days when speculation has mounted that the future of the euro itself could be in doubt. Still, should the crisis abate, the euro could appreciate rapidly.

Chinese Yuan

The yuan remains tightly pegged to the dollar, therefore its value should fluctuate with the dollar’s to a large extent. Further, the Chinese maintain capital controls, so it may be relatively hard for investors to get a large exposure to the yuan.

Still, the yuan may be attractive to investors for future potential. Should Chinese monetary authorities ever decide to sever the ties the country’s currency maintains to the US dollar, the yuan could rapidly appreciate in value.

Still, many critics allege that the Chinese economy is undergoing a real estate bubble and is due for correction. If the Chinese economy struggles, the currency could likewise suffer.

Other Currencies

Other currencies, like the Canadian and Australian dollars have worked well for investors in recent years. As the economies of Canada and Australia are dependent to a large extent on their natural resource reserves, their currencies have benefited.

Still, in the event of an economic contraction, the demands for these countries’ resources like oil and minerals could fall, and their currencies could suffer.

At any rate, diversification of assets may always be an intelligent investment strategy—including a diversification of cash holdings.

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