January 27, 2015

Sovereign Valley Farm, Chile

We’ve been very vocal in the past about the importance of holding a portion of your savings at a safe, stable bank offshore. The reasons are numerous:

Many foreign banks are much healthier than their Western counterparts who usually have razor-thin capital and tight liquidity.

Foreign banks typically make it easier for you to diversify your currency exposure, so that you don’t bet your whole savings on a shaky fiat currency that can be devalued overnight.

Foreign banks are further from your home government’s reach. Capital controls, exchange controls, asset freezes etc. become irrelevant when you bank in a safe foreign jurisdiction.

There are many other reasons to look globally for your banking needs, but these are among the most critical.

Problem is, it’s becoming increasingly difficult to open a foreign bank account in many top jurisdictions.

Bankrupt Western governments led by the United States have embarked on a global witch hunt to treat foreign banks (and their customers) like criminal terrorists.

Legislation like FATCA (Foreign Account Tax Compliance Act) and globally coordinated information sharing agreements have scared banks so much that they’re now very reluctant to open accounts for non-residents.

Taking on foreign clients used to mean extra business. Now it just means extra risk, not to mention a massive regulatory headache as well.

Even a place like Hong Kong, which has traditionally been one of the best and easiest jurisdictions to bank, is starting to close its doors to non-resident bank customers.

Just a few months ago you could stop in Hong Kong for a day or two, pop into a bank, and leave within a few minutes with a bank account.

Not anymore.

One of the best offshore banking locations in the world is now essentially out of reach for most people.

Fortunately, there’s a relatively easy trick to get over this hurdle.

For individuals, it can be challenging to obtain residency in Hong Kong (and it’s probably not worth doing just to establish a bank account).

But you can establish ‘corporate residency’ very easily by registering a new Hong Kong company.

Moreover, there are corporate secretary firms that can take things a step further by providing local director services, i.e. local residents who are nominally attached to the company in name only, but exercise no power or authority.

This would prove to any bank that your company has a local presence, i.e. residency in Hong Kong.

And with a local company in place, you’ll be able to establish a corporate bank account at a number of Hong Kong banks.

Bear in mind, Hong Kong banks are some of the most liquid and well-capitalized in the world.

And if you’re a US dollar investor, the Hong Kong dollar represents a very convenient alternative.

Since the Hong Kong dollar is pegged to the US dollar, you can hold Hong Kong dollars with minimal currency risk.

This would be beneficial if the US dollar stays strong. If oil prices continue to fall in US dollar terms, for example, they also fall against the Hong Kong dollar as well.

But if the US dollar were to suddenly drop, or if there were a serious shock to the system, the Hong Kong monetary authority could simply de-peg… and you’d like see a 20% overnight gain, just like we saw with the Swiss franc recently.

Obviously the best place in the world to hold Hong Kong dollars is at a Hong Kong bank. So if that interests you, I definitely recommend you consider this shortcut option to establish an account.