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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.

Not unless they were penalized or harassed for moving their money out of the country.

And unfortunately, that’s the reality for people living in many countries around the world today.

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

The common argument is that such restrictions are in the broader interest of the economy, especially following some sort of economic hardship or spike in economic or political instability.

But more often than not, these currency controls are the result of horrendous economic policies imposed by governments lacking any economic or financial foresight.

Poorly designed policies lead to economic slowdowns, a disintegrating business climate, mass unemployment, and a general demise of society, state, and economy.

Fun, right?

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

During an economic downturn governments can use all of 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 to discourage wealthy people from sending their money abroad. This included a 25% tax and a fixed exchange rate.

It eventually became a form of legalized theft that 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, typically through an approval processes and within specific thresholds.

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 and forcing businesses to seek permission from the central bank to sell pesos and buy foreign currency or make transfers abroad.

That said, Argentinians are still able to purchase up to $10,000 US per month without permission, which 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 are not allowed to convert more than $50,000 US per person per year, which isn’t much if you’re a wealthy Chinese citizen looking to purchase real estate abroad.

As is the case with many countries, this has been driven by a fear of capital flight and pressure from the central bank 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, which 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.

But South Africa’s foreign exchange controls aren’t new… they were originally imposed by the apartheid-era government to restrict the outflow of capital.

And that’s really what these controls are designed to 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 trying to keep as much money in circulation domestically as possible.

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

What should you do if a government restricts your money?

If you find yourself in a country that imposes currency restrictions on its citizens and residents, then 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 undoubtedly 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 and 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 such as a tax authority or the central bank to get permission to move funds abroad.

This will likely be a painfully long and bureaucratic process, but if you follow the rules and find a service provider that knows how to navigate the system, it’s usually possible.

What Does This Mean For Global Banks Insiders?

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

Understanding the benefits of diversifying your wealth 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, either through offshore banking or investment accounts, maintaining part of your wealth in different currencies, and taking responsibility for your own financial decisions.

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

If you’re not yet an Insider but want to keep learning about offshore and international banking, download our free report Offshore Banking Secrets & Lies.

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