Copyright 2012 by John T. Reed
The writing I have been doing lately on moving your cash to selected foreign currencies and banks has triggered a lot of feedback.
Generally, I think people are too wimpy about it.
First, it’s new and people fear the new. Plus, it is an unusual request for the banks in question. In this era of “press 1” or “press 2” and “please use our website,” the unusual request requires “operator assistance.” In large organizations like banks, it also requires getting to the proper decision maker. So often, if you visit a web site of a foreign bank or even walk into a foreign bank branch, you will not find a button or choice labeled “For American residents wanting saving accounts denominated in our currency in our bank.”
Let me take the extreme case and walk backwards: you put all your cash in a foreign currency bank account in a foreign country, even though you continue to live in the U.S. and you are a U.S. citizen.
Would that be unusual?
Yep.
Would it be weird?
I’ll stick with unusual.
Would it be a lot of trouble and expense and not worth it and cause you unnecessary trouble every day.
Nope. Welcome to the 21st century. Apparently you have not been paying close attention.
Right now, there are hundreds of thousand of Canadians living in the U.S. who have no U.S. bank accounts. Their bank accounts are Canadian. Their income is Canadian. Their bank accounts are denominated in Canadian dollars.
There is even a name for these people: Canadian tourists. On daily basis, these Canadians buy food, shelter, medicine, vehicle fuel, utilities in the U.S.—all using Canadian dollars in Canadian bank accounts.
How? Effortlessly.
In fact, you probably already know how they did it if you ever traveled to another country.
If the purchase in question is credit or debit card, the Canadian visitor hands his Canadian bank card to the U.S. merchant. The U.S. merchant processes it precisely the same as they would an American bank card. Indeed, they probably do not even notice what country the card is from. They don’t care. They will promptly receive U.S. dollars in the amount of the bill. The Canadian will see a slightly different amount of Canadian dollars appear on the bill, the currency exchange having been performed automatically at the moment of the transaction.
For smaller purchase, the Canadian visitor took their Canadian debit card to an ATM, stuck it in and got out $200 or some such in U.S. currency. Again, the needed Canadian dollars were converted to U.S. dollars automatically by the two banks. The Canadian’s bank statement will show the debit in Canadian dollars just as his credit card bill will do the same for the credit card purchases.
Suppose the Canadian does a transaction in the U.S. that is neither normally done by cash or credit card, like paying the monthly rent on a season-long vacation home rental? I paid a Rome hotel bill with cash to get a better deal. Romans are not real big on paying taxes and cash payments make it easier for them to cheat. When in Rome…
I had to go to the ATM machine two or three days in a row to get enough, plus my bank put a stop on the withdrawals and I had to call all the way back to the U.S. to get it straightened out. I am not sure what other ways there are to pay bills for rent or medical care or whatever where the vendor does not take credit or debit cards, but I have no doubt that you and your bank and the seller’s bank could figure out a way to do that would not be excessively difficult or expensive.
As I said, you have already done this albeit in Canada or some other foreign country when you were traveling abroad. Did you have any big deal problem being an American using American credit and debit cards in London or Hong Kong or wherever? I didn’t think so. So why do you assume it would it be such a big deal for you as an American in the U.S. to use a Canadian or Australian or or Danish or whatever credit or debit card here?
About the only things I can think of that would require a little effort to set up would be paying vendors who do not accept cards for large purchases and for getting U.S. income—assuming you earn such in the U.S.—into a Canadian bank account to begin with. You could manually transfer it once a week or whatever. Or you could probably arrange some accommodation with the payer to or his bank to automatically have money go into your account regularly.
I believe I can just change a setting on my web site to cause all my shopping cart income from selling my books to go into my Canadian or other foreign bank account. I might let you pay in U.S. currency, but have the merchant card company convert it into Canadian dollars for the deposit. If I could do that, my customers could be paying me in U.S. dollars on their credit or debit card statement, but I would be receiving Canadian dollars into my bank account. Same as what happened when you used your U.S. card to buy something while traveling abroad.
So you have already done this yourself when you were abroad. If you live in a U.S. metro area, there are foreign tourists and other visitors doing it every day all around you. So how does it suddenly get to be a big deal when you use a foreign bank card here in the U.S.? Indeed, it should be easier for an American to use a foreign card in the U.S. than for you do use a U.S. card overseas or for a foreigner to use a foreign card here. Better only the card is far from home than the human.
Then there is just some silly shyness. When our three sons were young, they would often want a refill or another hotdog or some such. We gave them the money and told them to get it themselves. At first, they did not want to interact alone with the sales clerks. And would do without. But eventually the oldest decided he would be brave and do it. When his two younger brothers came along he would give them a hard time about being afraid or offer to go with them. Pretty soon, they all had that little bit of independence.
Now I have grown-up readers expressing timidity and helplessness about opening a freaking bank account in Canada or Australia.
For Christssake, I’m not telling you to renounce your U.S. citizenship—yet. I am not urging you to join the French Foreign Legion. It’s just opening a savings acount. As the great philosopher Phil Knight said, “Just do it.”
Okay, I admit it requires a bit of entrepreneurial persistence. But how are you going to feel if you pussyfoot around for a month timidly trying to figure this out and the U.S. hyperinflation hits and the New Zealand dollars you could have bought for 83¢ today are suddenly selling for $83 each? And you still need five of them to buy a Big Mac in Auckland.
I have told readers the details of how I opened my Canadian account in person and my New Zealand account by phone, mail, email, fax, and wire transfer. After I do the Australian account I will recount the details of that if they are different from New Zealand (the big four banks are the same in each country). But the basic deal is pretty simple. You live here. You want a savings account there. You will promise to file FATCA forms and give them your U.S. address so they can comply with the Patriot Act and all that so please give me the wiring instructions.
Does it take a few more calls and emails than setting up a U.S. account? Of course. What did you expect? They have to verify your identity, comply with some international protocols like SWIFT. They have some unique laws, like I had to swear I was a U.S. resident to avoid a 33% tax in New Zealand. The tax, I am told will be 10% but I do not have to file an income tax return on the New Zealand interest. They withhold the 10% and that’s the end of it. I would only file additional stuff if I learned I was exempt from the 10% somehow. Then, if the amount was enough to worry about, I would file something like an amended U.S. 1040.
In New Zealand and, I expect, Australia, they seem to use their “migrant/expatriate” department to do this. In Canada, it was so common that it was all but effortless. I would not be surprised in a European country like Denmark might not be more like Canada because like Canada and the U.S. sharing a border, Denmark shares borders with Sweden and Germany and is very close to dozens of other countries. An American living in the U.S. having a krona bank account might be a little bit unusual combination, but they would probably have centuries of experience handling all sorts of foreign banking transactions and situations. When you think about it, and look at a map of the world, Australia and New Zealand are a bit off the beaten track.
Am I advocating Americans putting ALL their cash in foreign currency? No. I said that was an extreme case for teaching purposes.
You do not want to pay exchange fees unnecessarily. When I wired money from my US bank to my New Zealand bank, the U.S. bank changed me $35 for the wire and the NZ bank changed me $NZ10 (about $8.25 U.S. that day) to receive it. On my ATM card when I get it, if I use it in a particular huge U.S. bank chain’s ATMs, there will be no ATM fee. But there will be a 3% charge for the currency conversion.
So I do not want to be taking U.S. dollars, which is how my wife and I currently get our income, paying a fee to convert them to New Zealand dollars, then paying another fee to convert them back to U.S. dollars to pay bills. Nor do I want to be spending $43.25 very often to move money from my U.S. bank to my NZ bank. So we put our saving account money overseas and leave our checking account money in U.S. dollars. And that’s what I recommend to you.
Minimize the wires by doing large amounts at a time. Minimize currency conversions. Remember the big picture reason for all this. The U.S. government is going to “print” U.S. dollars to pay its bills once it can no longer borrow from the bond market. That will turn the U.S. temporarily into a financial hell on earth. When the U.S. comes to its senses, stable currency will be re-established, but that will not help the dollar accounts and bonds you had that were totally wiped out during the hyperinflation. They will stay wiped out.
Most likely, you would spend your foreign currency in the country in question while taking foreign refuge from an impossible situation in the U.S. You go to Canada, stay there up until the limit for tourists then, if you cannot get some sort of visa to extend your stay, move on to New Zealand and repeat. Since the typical country limits tourist stays to three to five months, having accounts in three or four different countries would enable you to permanently comply with visa laws while remaining outside of the U.S. If you spent your Canadian dollars during your stays in Canada, you would have only incurred the initial currency conversion charge, not a second one to spend the money, and did the same in New Zealand, you would simply be a smart tourist who, in anticipation of future travels, salted some money away in the foreign countries in question before your trip, thereby getting better exchange rates than after the hyperinflation in the U.S. began. Actually better is not the word for it. Hyperinflation renders your U.S. dollars worthless, and that applies to trying to buy foreign currency with them, too.
Why not just stay here and use your foreign bank cards as described above? You can only do that before hyperinflation strikes here. During hyperinflation, the government that is “printing” too much of its currency has to prohibit possession or use of foreign currency, gold, and such, called capital controls, otherwise everyone would refuse the inflated currency thereby eliminating the whole point of inflating. Also, during hyperinflation, it is frequently extremely difficult or impossible to acquire the necessities of life like food, heat, medicine, soap, and so on. You need to leave the U.S. so:
A. you can use your foreign currency which still has real purchasing power and
B. be in a country where buying a gallon of milk means going to the local store and paying $4, not hiking a dozen miles to a friendly farmer who will sell you black market milk for ten times its pre-hyperinflation price, after which you run a gauntlet of robbers and government inspectors looking for contraband like black market milk on your way back home.
You do not need to go to each country where you have money to spend the money. You can spend it in any country that does not have capital controls. If Canada would give you the visa extensions, you could spend all the years there necessary to wait for the U.S. to get back to normal—using money from every country where you had some to pay your Canadian expenses. That would cost you the second exchange fees, but would save you the airfares to travel to the other countries.
My Canadian banker said it was okay to put his name and contact info here: James Curran 604-665-7175 james.curran@bmo.com He is at the main Vancouver branch of Bank of Montreal.
John T. Reed