Negative Interest Rates and the US Dollar

US $ are accepted in many countries. Often visa fees in SE Asia are quoted in US Dollars (USD) – they may or may not accept other currencies. In some countries the USD is the regular currency or the main currency anyway.

For example, in Cambodia the USD is used for almost everything but for change under US$1 local Riels are used. For the US this can actually be a nice benefit. US currency serves as a loan to the US government. When the USA prints dollars and distributes they avoid issuing bonds or treasury bills for their spending.

When interest rates were 10% on long term bonds if the USA had an extra $800 billion in currency floating around outside the USA they saved $80 billion every year in interest payments (when interest rates were 5% they would have saved $40 billion a year). In addition if those bills are destroyed or lost that open the way for the USA to put new USD into circulation and avoid that much borrowing.

image of the front of the current USA dollar

It really doesn’t amount to a huge amount of help given how much the USA government spends but still it is a benefit. But with negative interest rates the reverse would be true. Currency offers what is normally seen as only 0% but in the crazy new world created by the central bankers bailing out the too-big-too-fail banks all over the world (creating massive amounts of liquidity [cash]) they started a path that has now led to the crazy situation of negative interest rates.

A negative interest rate means that say the German government borrows $10 billion today and pays back less money in 5 years. So if they got $10.5 billion today they would only have to pay back $10 billion in 5 years. This seems crazy mainly because it is.

Now the USA rates are not negative yet for long term rates (I think maybe in some really short term bills – under 60 days – it may have been). But negative interest rates have spring up in Euro denominated bonds from Germany (and a few other countries).

I find it funny that in such a case the USA would actually be giving those using their currency around the world a higher yield than those holding their long term bonds.

According the US Federal Reserve there is about $1.2 trillion dollars of USA currency in circulation (July 2013). The Federal Reserve estimates that the majority of the cash in circulation today is outside the United States.

The increased demand for the USD abroad also helps keep the USD value from declining in the face of huge trade deficits. To some extent we ship dollar bills to countries and they ship us food, cars, smart phones, etc..

Countries that use the USD as an official currency (though they may also have a local currency at least for small amounts – often under US$1): Panama, Ecuador, El Salvador, Zimbabwe and East Timor.

In some places it may seem on the ground that the USD is the official currency but it is really just the currency used without an official declaration: Cambodia, Peru and Uruguay

Related: Finding an International Business Bank as a Digital NomadCredit Card Currency Conversion CostsWhich Currency is the Least Bad? The USD (2012 post)

Finding an International Business Bank as a Digital Nomad

Dealing with banking issues is one of the most difficult aspects of a small digital nomad business. Finding a bank for a small business isn’t easy. Add to that dealing with international banking and things get very challenging.

Finding a bank that will accept deposits via wire, provide a credit card for your business, has good online tools and you trust isn’t easy. I ran across a very useful post recently:

The Best Offshore Banks of 2014 which includes a good deal of information on the 30 best banks according to them, for example:

Butterfield Bank

Established: 1858.
Jurisdictions: Bermuda, Bahamas, Cayman Islands, Guernsey, UK.
Minimum deposit/balance: 5,000 BMD/USD/GBP for business banking, 250 – 500,000 BMD/USD/GBP for private banking.
Personal banking: Residents preferred.
Commercial banking: Yes, international.
Private banking: Quite strong.
Remote account opening: In most cases.
Mobile app: iOS, Android.
Cards: Full coverage, available in USD and GBP.
Website: http://www.butterfieldgroup.com/

All things considered, the finest bank in the Caribbean and Bermuda. 2009 to 2010 were rough years for the bank, but they bounced back to profits by the following year. Although the share price took a massive dip, but the Butterfield signature quality was never compromised.

Card services are some of the best in the region, with two airline partnerships being available (AAirways and British Airways).

Internet banking is strong but the mobile banking app, although light-years ahead of other banks in Bermuda and the Caribbean, leaves a lot to be desired.

It provides enough information for you to screen through and find some good options for you. And then you can do more research and pick one to try out. I would definitely do more research, you shouldn’t trust 1 internet post to find a bank.

Singapore Merlion with the financial district in the backgound

Singapore Merlion with the financial district in the backgound

Finding a bank that accepts EFT deposits from the USA makes a big difference but this can be a challenge. Many internet companies still are stuck a decade or two ago as far as banking is concerned. Many only pay via EFT or check. Some will also pay via paypal. The options are limited for people in many countries (with poor mail system and paypal is also not available to people in many countries).

Of all my efforts in creating a digital nomad existence banking has been by far the biggest negative surprise. It has just been a huge hassle. I may well look to using one of these banks if I can find a better option for me.

Some that look interesting to me for digital nomad businesses are: Butterfield Bank (Bermuda, Bahamas, Cayman Islands, Guernsey, UK), Crèdit Andorrà (Andorra, Panama), DBS Bank (Singapore, Hong Kong, Malaysia/Labuan, Taiwan), FirstCaribbean International Bank (Anguilla, Antigua and Barbuda, Bahamas, Barbados, British Virgin Islands, Cayman Islands, Turks and Caicos Islands), Standard Bank (Isle of Man, Jersey, Mauritius, South Africa, Ghana, Angola, Singapore, South Africa, UAE)

It has been awhile since I created this blog and haven’t posted to it, but my plan is to be more active posting here in the future.

Related: International Migrants: Economics and BankingPrivate Foreign Banking Deposits by CountryThe Importance of Long Term Disability InsuranceGoing Nomad in SE Asia