U.S. Dollar Exchange Risks For The Overseas Retiree
“Kathleen, here’s my question,” writes reader MaryAnn S. from the United States:
“What happens to the standard of living and quality of life of U.S. expats when our dollar tanks or when China calls their loan? This is vitally important, as the U.S. Federal Reserve is printing worthless money so fast they might as well be using a photocopier.
“Our money used to be backed by real gold and silver. Today, less than 10% is backed by anything real or tangible. China is holding the real goods. They aren’t stupid.
“When I lived in Japan in the early 70s, the exchange rate was 360 yen to the dollar. I lived in the local economy, which meant my mortgage was in yen, as was the electric bill, gas, TV service, etc.
“Then the dollar’s value plummeted.
“By the time I left, the exchange rate was 270 yen to the dollar. I had to discharge my maid and gardener, cancel TV, etc. It was a struggle to make ends meet. I fear this will happen again, very soon.
“I see that Panama, Ecuador, and some other countries use the U.S. dollar. What happens to expats living in these countries? If/when the dollar tanks, the ripple effect will impact currencies globally. If I relocate to Mexico, for example, the exchange rate could change dramatically, as it did in Japan.
“I feel that we, all of us, no matter where we live, are between a rock and a hard place with respect to the economy right now.
“So, bottom line, my question is this: When the dollar tanks, will I be better off in another country or in the United States?”
Correspondent Paul Terhorst, 25 years retired overseas, replies:
“You’re correct, dear reader. If the dollar tanks, expats in some countries will face much higher living costs. Your experience in Japan could repeat itself around the world.
“In a worst-case scenario, we could move back to the U.S….or we could move on to a country that ties its currency to the dollar–to Thailand or Oman, for example…or to Ecuador or Panama, the two countries you name that use the dollar itself.
“Or we could move to a country that’s in even worse shape than the U.S. There are bound to be a few…
“Since the beginning of the current crisis, the dollar has strengthened, and it looks likely to stay strong for now. The Chinese want a strong dollar to safeguard their US$2 trillion investment in dollar bonds.
“If you had a crystal ball, you’d sell dollars at their peak–whenever that turns out to be–and buy foreign currencies. I’ve been singularly unsuccessful in predicting currency movements, but you might have more luck.
“Meantime, again, in this regard, countries that tie their currencies to the dollar or that use the dollar itself could be a good place to focus your search.”