The Future Of The U.S. Dollar

March 16, 2011:

"Kathleen, I am a follower of your Live & Invest Overseas e-letter and love the information it provides. I have a question that has been bothering me for a while. I believe it should be directed to Lief Simon.

"Much has been written, particularly recently, about the precarious state of the U.S. dollar and the possibility of it losing its status as the world's currency of choice. We are seriously contemplating a property purchase in Panama, which, as you know, uses the U.S. dollar as its currency.

"What happens to Panama if the U.S. dollar tanks? And what would happen to Panama property values?

"I hope you can shed some light on this for me or direct me to a resource that can help. Thanks again and keep up the good work."

--Keith H., United States

Lief replies:

"The U.S. dollar has little to do with Panama's economy. It is simply the current medium of exchange in this country. If the U.S. dollar collapses, then Panama could switch to using its own currency or to using another currency as its medium of exchange. We've spoken with bankers and others in this country who agree that there's no way to predict how Panama might react should the U.S. dollar lose its position as the world's currency. Much would depend on the administration in power at the time.

"Frankly, the retiree depending on U.S. dollar-denominated income alone for his retirement would be better off if Panama retained the U.S. dollar as its currency. You'd still feel the effects of U.S. dollar-based inflation, but you wouldn't have any currency exchange risk to worry about day-to-day.

"If your retirement income is based 100% in U.S. dollars, you have these concerns anywhere you go. At least in Panama (so long as this country continues to use the U.S. dollar as its currency), again, you aren't also at the mercy of the exchange rate."

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