Living in a “Dollar” Economy

A question that comes up often during the tours is if I’m concerned about living in Panama since it uses the U.S. dollar.  The “official” currency of Panama is the Balboa.  However, Panama only has Balboa coins.  The U.S. dollar is used for all paper money…. at least for now.   The Balboa is currently pegged 1:1 to the US dollar.

The good news for many is that the U.S. dollar is stronger than it’s been in the last 12 years, and that means that retiring overseas just got more affordable.

A LOT more affordable in Panama!

According to Bloomberg , the dollar is up a whopping 25% since July, when compared to a basket of international currencies.

That makes today a VERY smart time to be considering your best options in Panama.

One of the best articles I’ve ever seen about living in a country who uses the U.S. dollar is from Bob Adams from www.RetirementWave.com.   Bob often meets with our tour group in Panama City.  We are the ONLY relocation tour company he endorses because he knows we “tell it like it is” and don’t try to sell you anything.   See Bob’s article below…

In 48 years of working and traveling around the world, I have had plenty of experience with currency exchange. There were days when I would swear that I spent half my time in airports and the other half in banks changing money! The currency I carried in almost all instances was the US dollar, so I am well aware of the rise and fall of the dollar’s value over nearly five decades. I know that sometimes it feels like a wild ride up and sometimes down. I know that I have never been able to predict the value of the US dollar a month ahead, much less a year ahead.

The foreign exchange market is huge, the biggest market in the world. Currencies worth some four trillion dollars ($4,000,000,000,000) are traded in the formal market every day except part of the weekend, and during that period, private trading continues off-market. If all the money all RW members ever exchanged for another currency in their entire lives (whether US dollars or not) were put together and traded in one trade on the global market, the market would not even notice. I mention this because it is important to keep this in perspective. If you are going to trade the currency exchange market, you have to be prepared for a mountain of homework and frequent disappointment.

Over the years, I have received a number of emails asking me if I am not worried about living in a “dollar economy” as the writers fear a collapse in the dollar’s value. No, I do not lose any sleep over this and I will briefly explain why.

But first, I want to emphasize that I have absolutely no interest in debating the future value of the US dollar or any other currency. You are very welcome to your opinions, whatever they may be. And I am not going to comment on the macro-economic implications of currency exchange rate fluctuations, a topic that would take too many pages to discuss and be of a very little help to any of us. I am simply going to discuss how I would approach it based on my experience and professional background. But first, a note on Panama.

Panama has used the US dollar since its independence in 1903, thus it has more than a century of experience with the ups and downs (and there have been plenty of both) of that currency. Panama is not required to use only the dollar or the dollar at all. It can change currencies or add a second currency at any time it so chooses, if and when it so chooses.

The constitution forbids printing our own paper currency (Article 259), so we are free to choose the paper currency we prefer. We use US coins, but we also have our own that are very similar because it is silly to spend a fortune on transport and insurance to ship heavy metal coins down from the US. They represent a tiny portion of our total money supply in any case.

By virtue of not having our own paper currency, we cannot inflate our money supply. Every paper dollar we have must be earned. Even when we borrow dollars, we cannot print our loan payments, we must earn every one of those dollars too. And, keep in mind, we have no central bank, only a Bank Superintendency whose responsibility is overseeing the industry and its practices, not determining the money supply. You may feel that a central bank is a necessity, but we do not, and we seem to be getting along quite well, thank you. Keep in mind, Panama has had no bank failures, much less bank bail-outs, throughout the global financial crisis and none are expected. Our banks are very conservatively run, very liquid, and very profitable.

Enough about Panama, what about you, if you are especially concerned about a collapse of the US dollar’s value? In my mind, you have little to fear from a collapse in the US dollar, so long as you do not own any. The Indian Rupee is a major currency in Asia and can be traded in global currency markets. I do not know the rupee’s value and where it is headed and I do not care. I do not own any rupees. I can say the same about more than 150 other currencies. I only care about the value of the things I own. The same is true in India and everywhere else. So if I had no US dollars, I would not care much what happened to the dollar. I would be focused on my own currency.

So, in my mind, the first step to protect yourself, if you hold US dollars and are concerned, is to sell them for “something else”. If you believe the dollar could collapse at any moment, I assume you have already done this for obvious reasons, but let us pretend you have not yet done that. How you define that “something else” is of no interest to me, just so long as it is not US dollars for this example. So I do not have to repeat “something else” constantly, let me just call it SE and, for the US dollar, I will use $.

With all the above in mind, here are the steps that seem to make the most sense from my experience for those convinced that a US dollar collapse is inevitable:

• You sell all your $ for SE, holding only enough $ to pay for expenses you know will require using the $.

• If the $ remains stable or rises and you run out, you can sell just enough of your SE to provide the $ you need.

• If the $ collapses, and you have correctly chosen an SE that is stable or rises in value, the $ collapse is of no significance to you. If you have a few left, you can donate them to charity.

• Simply put, if you own something that is valuable today, but that you think will suddenly collapse in value without warning, sell it! If you are right in your prediction, than it will be someone else’s problem, not your problem when it happens.
• Where do you want to be living when the $ collapses, assuming it does? In a dollar economy, of course. You will be surrounded with people with $ that are now worth little or nothing. You will have SE which is valuable. They will want that SE and want it badly. They will be willing to trade you their land or condos or businesses or whatever for your SE at terms that are extremely attractive to you. And because you have been living there, you will have the best idea of what is worth buying as you have been taught by the best “guru” there is – your own personal experience on-site.

Is the above my recommendation to members in general? No, it is not. I simply am trying to look at this from the perspective of members for whom this is a serious concern. I respect that concern, as I do other concerns Members share, whether it is a concern for me or not. What you do with your money is your business, not mine.

I think that sums it up. I hope you find it useful for consideration. Everyone has his or her own opinion and that is my opinion. You may think otherwise and that is just fine! To each, his or her own!