What do South Africa, Argentina, Venezuela, & Nazi Germany Have in Common?

Why would anyone keep their money in a failing economy if they could take it elsewhere? They wouldn’t! Unless the government imposes currency restrictions and blocks the movement of money.

Unfortunately, that’s the reality for people in many countries around the world.

But, why would a government impose restrictions on moving money or holding foreign currencies?

The common argument is that such restrictions are in the broader interest of the economy. Especially following economic hardship or a spike in economic or political instability.

More often than not, these currency controls are the result of bad economic policies. All of which are imposed by governments lacking any economic or financial foresight.

Poorly designed policies lead to economic slowdowns and disintegrating business climates. Not to mention, mass unemployment, and a general demise of society, state, and economy.

Fun, right?

How Do Governments Impose Currency Restrictions

There are a number of ways that governments can impose such currency restrictions. These include fixing exchange rates and restricting the flow of currency. Or even making it illegal for citizens to hold foreign currency.

During an economic downturn, governments can use all these methods to restrict the flow of money out of the country.

It’s happened throughout history, time and time again.

Under the Nazis, the ‘Reich Flight Tax’ was introduced. This tax set in place to discourage the wealthy from sending money abroad. This included a 25% tax and a fixed exchange rate.

It eventually became a form of legalized theft. Which then allowed the state to confiscate the assets of Jewish nationals fleeing persecution.

In places like North Korea, you’ll be hard-pressed to send money abroad. But it’s still possible for citizens to illegally get their hands on foreign currency. Primarily USD and EUR by way of foreign tourists.

In other countries, there are still ways to legally acquire foreign currency. This is typically achieved through an approval process and within specific thresholds.

Where Do These Currency Restrictions Exist?

Here are a few examples of countries that control what their citizens can do with their money today…

In September of this year, Argentina imposed capital controls in order to stabilize the value of the peso during their ongoing financial crisis.

Specifically, the government is restricting foreign currency purchases. As well as, forcing businesses to seek permission from the central bank to sell pesos, buy foreign currency, or make transfers abroad.

That said, Argentinians are still able to buy up to $10,000 US per month without permission. This is quite lenient compared to the 12-month freeze that Argentina imposed on all dollar transactions in 2001.

China also enforces foreign currency restrictions on its citizens. Chinese nationals cannot convert more than $50,000 US per person per year. That isn’t much if you’re a wealthy Chinese citizen looking to purchase real estate abroad.

Like many countries, this has been driven by a fear of capital flight and pressure from the central bank. Their goal is to keep money circulating in the domestic economy, adding a degree of artificial support for the yuan.

South Africa also imposes capital controls. Although, for the time being, citizens can still use legal channels to move money within certain thresholds. But only if they meet certain requirements.

In other words, the government allows South Africans to take out up to US $67,000 per year without permission. That is a bit more than China but a lot less than Argentina.

If a South African wants to send more money than that, they have to apply for permission. We wrote about South Africa’s specific restrictions and risks here.

However, South Africa’s foreign exchange controls aren’t new. They actually first came about during the apartheid-era government to restrict the outflow of capital.

And that’s really what these controls do: to restrict the financial choices of citizens.

In places like Venezuela, the reasoning for foreign exchange controls are pretty obvious. It’s the classic tale of a corrupt government and a failed economic system. They almost always try to keep as much money in circulation domestically as possible.

Unfortunately, in all the situations referenced above, it’s the average citizen that ends up suffering the most.

What should you do if a government imposes currency restricts your money?

What if, for instance, you find yourself in a country that imposes currency restrictions on its citizens and residents?

First, you need to ask yourself a few important questions:

1. Could these restrictions get worse?
2. Would I be better off if I moved a small amount of my money abroad?
3. What are my options to do this?

If the answer to the first question is yes, then the answer to the second question is yes as well.

In fact, even if your country doesn’t currently impose foreign exchange controls, it might in the future. So it makes sense to keep at least a portion of your wealth in another currency. Often-times, you want to do this in another country for diversification.

As for the last question, “What are my options to do this?” that usually depends on two factors: the country you live in and the amount of money you want to move.

In most instances, assuming you don’t live in North Korea, you can usually apply through government agencies. These typically include such agencies as a tax authority or the central bank. That’s how you can get permission to move funds abroad.

This will likely be a painfully long and bureaucratic process. However, if you follow the rules and find a service provider, it’s usually possible.

What Does This Mean For Global Banks Insiders?

The biggest take away for Insiders is to be alert and know the warning signs of a failing economy. By doing this, you will understand how to navigate the risks of currency restrictions.

Understanding the benefits of diversifying your wealth is important. This will ensure that you and your family always have options available in the future.

That means having access to funds outside of your home country. This can be through offshore banking or investment accounts, maintaining different currencies.

If you’re already a GlobalBanks Insider, you can start looking at your options now. Just use our banking intelligence reports and our private, members-only platform, GlobalBanks Insider.

Not an Insider but want to keep learning about offshore and international banking? Then download our free report, Offshore Banking Secrets & Lies.

If you bank or do business internationally, knowing the truth about opening and maintaining offshore bank accounts can save you thousands of dollars and an incredible amount of time.

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