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Andrew Henderson

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How capital controls and a currency collapse bankrupted this country

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Last updated: March 26, 2017 Dateline: Kuala Lumpur, Malaysia Imagine the cost of everything you buy instantly going up by 30%. Overnight. I want that to sink in. Sure, a lot of people talk about rising prices. We’re discussed how the cost of everyday staples like bananas have gone up four-fold in the United States in less than a generation. So, imagine traveling to another country on vacation, or buying goods from someone in another country. Heck, just imagine using an ATM or buying foreign currency. In today’s global economy, those things are extremely common. I do business with companies in countries around the world on a daily basis, and because I don’t bank where I live, my ATM withdrawals are all considered “overseas”. This stuff isn’t uncommon any more, but one country has thrown down the gauntlet and imposed capital controls any practically any type of financial activity its citizens conduct abroad. That country is Belarus, the last remaining bastion of Soviet-style communism. The government in Minsk announced late last year that any Belarus credit or debit card used to conduct business in a foreign currency, or used abroad, would be charged a 30% fee for doing so. Under this ruling, any purchase of foreign currency is effectively taxed at 30%. If you live in Belarus and want to escape the ruble as it falls like a stone, you have to pay a huge fee to the government for the privilege of doing so. I’m dubbing it “the Argentina of Europe”. Ditto for purchasing practically anything online, since Belarus isn’t exactly a bastion for the likes of Amazon and Zappos. And anything you buy when traveling (heaven forbid you’d do that) will be taxed as well. The goal is to force Belarusians to keep what little savings they have in the failed state’s ruble currency and prop up the government. That decision has proven to be very costly for Belarusians, as the Belarusian ruble is down 34% in just the last two months alone, mirroring the same plummeting valuations seen in Ukraine. Not only do those with Soviet-style bank accounts in Belarus have to pay 30% any time they do any kind of business overseas, but they’ve lost more than a third of their purchasing power virtually overnight. Purchasing power that means they are less able to travel, less able to invest overseas, and less able to protect themselves. It’s a triple whammy of bad economic policy, all because they believed in their government. Heck, at this point, paying the 30% withdrawal fee for foreign currency would have been a prudent investment. That’s how bad central banks and governments with an axe to grind can screw up your money. They can tell you it’s about punishing “the rich” all they want, but capital controls like these hurt the little guy as much or even more than the guys at the top. I’ve been to countries where people my own age regaled me with stories of how their parents lost it all when their countries’ currency went to zero practically overnight. With central bankers and politicians that couldn’t care less about their people, bankruptcy really does happen as Hemingway promised: gradually and then all at once. While Belarus is a cautionary tale for the increasing advent of capital controls around the world, most people reading this aren’t in Belarus. In the last year, more than 1.3 million people have visited Nomad Capitalist from around the world, but only about 4,000 of them came from Belarus.

How to avoid capital controls

The reality is, this insidious form of capital controls can happen anywhere. And the same tactics used by the government in Minsk can happen where you live. If you live in the United States or the United Kingdom, they already have. You see, there are two things that makes Belarus about the farthest thing from a “safe haven” you could think of. The first is this type of capital control that forces every man, woman, and child within the country’s borders to take an unwanted “long” position on the currency. Once they have nowhere else to go, the government can run wild and bankrupt the population as they wish. The second is just how hard it is to get into Belarus, where politicians seem to have missed the fall of the Berlin Wall and the end of the Cold War. Belarus is still in love with the trappings of the Soviet Union, so much so that getting a visa to visit, let alone do anything else, is a royal pain. As someone on a mission to visit every country in the world, I tried to visit Belarus from Vilnius, Lithuania last year. Despite the two cities being so close, I gave up after a bunch of nonsense from Belarusian immigration officials in Vilnius. Today, I’m eligible to go there without a visa, but even that seems a bit daunting. Anyway, here’s where this matters to you: the US and the UK already impose even worse capital controls and visa controls, even if they work hard to cloak them much better than the Belarusian government has. US citizens are now banned from the global financial system if they refuse to submit to FATCA, and foreign banks are on the hook for a penalty just as large as the capital control penalty in Belarus. And the United States in particular is the world’s hardest country to get a tourist visa for. Attitudes from US officials even to British and German friends of mine are flat out appalling. I’m amazed anyone even bothers. The United States, and to an increasing extent the UK and even Australia, are adopting closed-minded Soviet-style tactics designed to keep their citizens’ money in, and foreign money out. The thing that many Belarusians have in common with the west is their desire to wave the flag and chant “God bless Belarus”. (Or something similar) I made a Belarusian friend in the United States several years ago, and he tells me he is the only person in his family and among his old friends that don’t worship the Soviet way of doing things. People there are blind and trust in the government to provide. They wave the flag and believe it will bring them as much prosperity as it ever has. If Belarusians were smart, they’d have slipped into Latvia or any other European bank they could get to and move their savings into a more stable currency in a more stable jurisdiction. The same way we recommend to everyone here. The advantage Belarusians have is that they aren’t under the watchful eye of the world’s largest tax authorities with internet spying and drones monitoring their every move. Those not indoctrinated with patriotic propaganda can still take their money – what little they have left, at least – and leave. That option is fast waning in many western countries.

Here’s why no one will save you from capital controls

I put a call into my Belarusian friend a few weeks ago to get his thoughts on what’s happening in his home country. And he said one thing that really rung true for me. My friend told me that while he hears some of the people working in banks there don’t agree with the law (after all, they are victims, too), they have no choice but to tell anyone who complains, “Sorry, but it’s the law”. It just goes to show how banks, institutions, and even retailers will always side with the government in situations like this, out of fear of being shut down. It’s the same reason I said that US government agents don’t need to door to door to round up all of the gold and silver if they wanted another gold confiscation. They’d merely forbid every bullion dealer and retail establishment from accepting the stuff under penalty of death. Do you think Wal-mart is going to take your side… or that of the government that can put it out of business? Making plans for capital controls where you live is a sound strategy to protect your hard-earned money, and it starts with simple offshore strategies that recognize no one government can be trusted.


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