Where To Hold What
The world press reports at least three bank runs last week. Greeks and Spaniards pulled their euro, and Argentines their dollars, from local banks.
Spaniards bailed after learning that Spain would spend 19 billion euro to keep Bankia solvent. But Spain itself has trouble borrowing money. If other banks need help, as well, Spain might run out of euro.
Greeks bailed after voting for a leftist government. They figured that Marxists who ridicule property rights might go after bank deposits. Duh, right?
Argentines bailed after figuring the government must be running out of dollars. In the past several months Argentina has banned most retail dollar purchases, as well as many imports that must be paid for in dollars.
Note that all three countries lack access to printing presses. Others produce the euro that Spain and Greece need, others produce the dollars that Argentina needs.
I’d say that can be a good reason for pulling deposits out.
My advice: Keep your bank deposits in currencies of the host countries.
Using the host currency means you have peso deposits in Argentina, yuan in China, baht in Thailand, and dollars in the United States. Avoid dollar deposits outside the States, yuan deposits outside China, and so on.
Euro present a special case, because control of the euro printing presses remains a mystery. But most agree that Germany controls the presses. That means euro deposits in German banks should be safer than in non-German banks.
Once you deposit in the host country’s currency, you have extra protection. Take the United States as an example. Almost no matter what happens, the United States can pay off dollar deposits by printing more dollars. Â Or the Fed can make a simple accounting entry to create more dollars. Those dollars may be worth less. But at least depositors will get them.
Argentina, on the other hand, lacks access to dollar presses. Argentina can print unlimited amounts of pesos, but not dollars. Panama and Ecuador, too, need to rely on presses in the United States, even though they use dollars locally. Greece and Spain lack an unlimited supply of euro. They need to get Germany to go along with their plans.
Maybe I’m being overly cautious. Some north European countries and their banks appear sound. And Panamanian banks, for example, currently have far more dollars than they want or need, rather than too few.
Remember, too, that even with local currency deposits, you’re exposed to risk. For example, you lose if your uninsured local bank goes under, if the local currency declines in value, or if the government confiscates bank deposits. I’ve seen all those things happen in Latin America over the years.
Still, prefer deposits in the local currency, in the largest, local, too-big-to-fail bank, where the government runs the presses. Your money should be a bit safer.
Paul Terhorst
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