Copyright 2013 John T. Reed
The U.S. dollar is, of course, the official currency of the U.S. and legal tender in the U.S. (That means you can cram it down the throats of your creditors even if it drops substantially in purchasing power whether they like it or not.)
But did you know there are a number of other countries where the U.S. dollar is the official or quasi-official currency? They are:
Bahamas (Bahamian dollar always = $1 US)
Belize (Belize dollar always = 50¢ US)
Bermuda (Bermudian dollar always = $1 US)
Cambodia (quasi official in major cities)
Cayman Islands (Cayman dollar always = $1.20 US)
East Timor (tiny island country between Indonesia and Darwin Australia)
Federated States of Micronesia (South Pacific)
Marshall Islands (near Micronesia actually)
Organization of Eastern Caribbean States (OECS dollar always = 37¢ US)
Palau (east of the Philippines)
Also, it is my impression that real estate and imported cars and electronics in Latin America generally must be bought with U.S. dollars.
Worldwide, the purchasing power of the USD falls to zilch, including in these countries. Accounts and other USD-denominated assets in those countries will become worthless.
Citizens of those countries will be really pissed at Americans.
The U.S. government, which is the perpetrator of the hyperinflation, will do everything in its power to keep U.S. residents in the USD for as long as possible. However, they have no such power over these other countries and they will all likely terminate the status of the USD overnight. In other words, the official and quasi-official currencies of these countries will switch to another stable currency that is readily available. It is impossible to predict today but probably one of the other IMF approved reserve currencies: AUD, EUR, CAD, CHF, GBP, JPY, SGD, YEN. Different countries may switch to different new currencies.
What USD hyperinflation planning rules apply to these countries? Generally, everything I said about hyperinflation in the U.S. applies to these countries except that the duration of the hyperinflation in these countries will be about one day instead of two years or so in the U.S. The USD assets will likely be wiped out just the same, but the capital controls, food and fuel shortages, rationing, anti-hoarding, and financial repression laws will not be passed in these countries.
Should you put assets in these countries?
Well, let’s think about it. They could be a sort of Everbank only without the U.S. government having the ability to forcibly convert your accounts to USD or to prevent you from converting USD accounts to other currencies. For example, suppose you could use a Cayman USD bank account to pay your routine USD bills. If and when we get USD hyperinflation, you simply move that money into stable non-USD accounts. If you were paying your routine bills out of US bank accounts, you would be stopped from converting your remaining USD funds to other currencies by U.S. capital controls.
Actually, you could do that in Canada, too, now that I think about it. They routinely have USD accounts up there. I have one because it is the cheapest currency conversion for sending USD up there to turn it into CAD. I could pay my routine U.S. bills out of that Canadian BMO (Bank of Montreal) USD checking account. Then, if and when the USD gets hyperinflation, I could instantly move those USD to CAD in BMO online at no cost.
U.S. govt could not stop me because the money would already be outside the U.S.
If, however, you leave your money in USD accounts here in the U.S. to pay routine bills, when we get hyperinflation, everyone in the U.S. will run screaming for the exits, that is, try to wire the money to Canada or elsewhere, only to find that exit has been slammed shut by U.S. govt. capital controls. Those prohibit possessing or using foreign currency or bullion gold within the U.S. and they limit the amounts of USD you can take out of the country to very small amounts and then only when you are traveling abroad.
Oh, by the way, do you know why these various little countries use the U.S. dollar? Because their own governments could not be trusted to not print too much of the former local currencies. In other words, they use the U.S. dollar to avoid inflation. Ironic given what I think is about to happen here.
Memo to those countries that use the USD or peg to it: Stop. Switch to one of my recommended currencies or just let your residents use whatever currency they want. That way, if and when the USD implodes, there would be less trauma in your country. Your belief that the USD is a stable currency is, notwithstanding the current calm before the storm, out of date.
The primary attraction of these offshore USD countries is their USD hyperinflation will end overnight. That’s better than the U.S. itself where I expect it to last about 6 months to two years. But it is not as good as Australia, Canada, New Zealand, and Switzerland where I expect they will have no hyperinflation at all.
Being in a country that is really pissed at Americans is not likely to be fun if you are an American. The only assets you would want to have in such countries would be non-USD-denominated.
What advantage would any of those countries have for such assets? If you could have, say, AUD-denominated accounts in Cayman, one advantage would be a shorter flight to go there in person.
The Cayman Islands are west of Cuba. The Caymans are about as expensive a place to live (except for rents) generally as Sydney and more expensive than Auckland.
Although I just went to Australia and New Zealand in person, I did not have to. I had already opened my bank accounts there a year before by Fedex. One advantage of physically being in Australia and New Zealand if you have money there is you can spend it there without incurring a second currency conversion cost. In, say, the Cayman Islands, you would incur that cost trying to spend AUD or NZD there.
John T. Reed