Should you move routine bill-paying USD cash abroad and pay those bills with USD checks or online payments?
Posted by John Reed on
Copyright 2013 John T. Reed
I am investigating whether I should change my foreign currency advice from “put your rainy-day savings into selected foreign currencies in foreign banks outside of the U.S.” to “put your routine bill-paying cash there as well.”
The idea would be that you can get U.S. dollar accounts in overseas banks. I have one at the Bank of Montreal (BMO) in Vancouver Canada. The reason I have it is to deposit US dollars there then immediately transfer them into my CAD savings account. My banker there, James Curran, tells me this is the lowest currency conversion cost method for moving my USD into CAD with BMO. I have not inquired about USD accounts at my Australia bank, Westpac, or my New Zealand banks, but I would not be surprised if I could have them there, too.
The reason to move your routine-bill-paying USD to USD accounts abroad would be to get the money outside of the jurisdiction of future U.S. capital controls. Those typically prohibit you from possessing or using foreign currency or taking U.S. currency out of the U.S.
Hard assets only escape within U.S.
In other words, when the purchasing power of he U.S. dollar starts to plummet to zero, capital controls prohibit you from getting your money out of the country and into foreign currency. About all you can do at that point would be to withdraw your money and use it to purchase hard assets. But as you can see if you read my web article The Day the Dollar Dies, that will be a fist-fight mob scene as everyone else in the world simultaneously tries to do the exact same thing.
Also, I must add that if there were a run on the dollar, you would likely see the U.S. government declare “bank holidays.” That is, order all banks to shut down, including online services and ATMs, thereby preventing you from getting your money out to buy hard assets or anything else. This was done recently in Cyprus and was done in the U.S. during the Great Depression.
Have to have liquidity to pay bills
Plus, even if you succeeded in converting your USD cash to hard assets, you would then be in a liquidity pickle. How do you fill up at the gas station with a hard asset? Or buy groceries or a restaurant meal? Or pay your utilities bills?
You could use your Canadian USD account to pay routine bills. Although my banker wife says that might annoy some creditors or violate agreements that say you have to pay with checks drawn on U.S. banks. Since the money in the account in question would be USD, neither you nor your creditors would have to pay a currency-conversion charge. But the bank of your creditor would probably have to submit the check “for collection” to the Bank of Montreal or whichever foreign bank you were using. Your creditor might have to pay an extra fee for that and/or there might be a delay. I expect creditors like mortgage servicers and credit card companies would be most likely to say that foreign bank checks, even in USD, were unacceptable.
Synchronized snail mail
I have been snail mailing a check from my bank USAA in Texas which is where my social security is deposited each month to my BMO USD account. There is a delay, but no cost. I mail it in advance to synchronize the arrival of the check back at USAA for payment with the arrival of the direct deposit there from Social Security. So it seems to me that you could probably pay a number of your US creditors with BMO checks. With those who would not allow it, you could transfer money on a just-in-time basis from your foreign USD account to a stateside one and pay those bills only out of that account.
Use of US banks related to foreign banks to move money to the foreign bank
One reader said he was about to get an account from a Florida bank that was owned by the same company that owns TD Canada Trust. He said he could move money on line from the TD Florida bank, a US bank under the jurisdiction of future US capital controls, to the TD bank in Canada. That would save wire transfer fees and delays from either wire transfers or international snail mail.
So I have two questions for readers:
A. Does anyone know of an offshore foreign bank that will let you hold USD account and let you move money to that account from a related U.S. bank via online transfer?
B. Does anyone have experience paying USD routine bills from a USD account abroad? If so, what problems if any, are there with it?
The basic issue here is whether we should move not only rainy-day savings abroad, but also cash to pay routine bills to USD accounts in foreign banks abroad. If and when USD hyperinflation began, this would enable us to instantly transfer all of our USD cash into CAD or other foreign currencies, an emergency step that the U.S. government would likely prohibit via capital controls on all cash within the U.S. once hyperinflation began. By “transfer” I mean that you would trade all of your USD to your foreign bank in return for them giving you CAD or whatever their local currency was. Some banks can also hold accounts for you in currencies other than USD and their local currency.
That would cause you to incur a currency-conversion charge thereafter when you paid U.S. bills, but when the value of the USD is plummeting toward zero, you will be glad to pay that charge. Also, at that point, I suspect many of your U.S. creditors would be delighted to get the bill paid in the foreign currency, perhaps via their opening a CAD account in Canada for you to credit.
Folk, this is called cash management in the financial industries. I recently reviewed the Figgie International Hyperinflation Survival Guide. It said companies in the Latin American countries with hyperinflation were cash managers in the extreme. Normally, cash management is only needed where the amounts are huge and/or where interest rates are high. But cash management is far more important where hyperinflation is occurring—and interest rates are so high as to make credit non-existent in such countries. We will need to be super cash managers, too, if it happens here, and you cannot move your USD out of USD into foreign currency abroad unless you do it before the wall of capital controls drops.
John T. Reed
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