U.S. Dollar Spending Power Abroad

“Kathleen, what happens in countries like Panama that use the U.S. dollar if/when it tanks?”

–Mike M., United States

The dollar has little to do with Panama’s economy. It’s simply a medium of exchange. If the U.S. dollar collapses, then Panama can switch to its own currency or another currency for the medium of exchange.

The concern isn’t Panama using the U.S. dollar. The concern for the resident retiree or expats (in Panama or anywhere) is local inflation.

Living in a dollar-based economy simply means you have less exchange rate risk than you would living in a country that uses another currency (assuming your income is U.S. dollar-based). If you’re living off U.S. Social Security or some other fixed, U.S. dollar-based income, for example, in Panama, you know how much local money you’ll have to pay your bills each month. In a country that uses a different currency, you have no idea how much local currency you’ll have month by month, as it will fluctuate with the exchange rate.

This is not to say that your local cost of living can’t or won’t increase over time. It likely will. But, again, this is to do with local inflation…not the value of the U.S. dollar.