Spanish crisis, corralito and protecting your savings‏

2 comments

Entre corridas bancarias y más ajuste, el temor a un corralito invade España

Hi Fernando, greetings from Barcelona,

I’m been a long time reader of your blog, it’s funny to write to you in English but I guess it’s more convenient for you.
I’d like to have your opinion on two related subjects,
- first, the chances of a corralito happening in Spain and what “signals” we could watch for in order to see it coming.
Most probably there is a correlation between this and Spain leaving the eurozone.
- second, what measures would you take to secure your money, ie to protect it against a corralito,
1. keeping physical money at home aka “bancolchon”. I mean not only emergency money but actually a good share of your savings.
I think you went through something very similar in Argentina with the dollars. Apart from the obvious disadvantages, like being stolen or
depreciation, if Spain left the euro zone I wonder how you would manage to keep and use this amount of metallic. ie imagine go back
to the peseta and the goverment issues a law to make all citizen convert their euros within a deadline. If you’re not willing to change it,
now you have the triple problem of: keeping it, using it, moving it.
Some people advices collecting euro notes whose serial begins with X (issued by Germany) and getting rid of the rest, those with V are
issued by Spain. The justification for this is that again, if we go back to pesetas, those X-notes could be changed in Germany. I’m not
so sure about this but if you do it it doesn’t hurt your chances either.
2. buying gold, silver, etc.
3. opening a non-resident account in another country.
Countries like Germany or Switzerland seem good choices. ie. swissquote has good references and it seems you can open a deposit
account there from internet, it’s an online bank. Maybe I’m a bit paranoid here, but in the event of EU breakdown, I’m not sure if this account
would be safe from the goverment’s measures – either the Spanish or the Swiss / German / etc.,
(I’m not being very specific here but I hope you know what I mean).
4. stock options, invest funds, bonds, etc.
The advantage here – correct me if I’m wrong – would be that in the case of a corralito you’re assets run much less risk of being seized.
For the moment I only I’ve some emergency money at home, but all the rest is in a Spanish bank account. There’re many different opinions
mixed with some justified paranoia, I want to make a no nonsese assesment of the situation and take preventive measures, I’d really appreciate
your take on this.
Thanks in advance,
E.

 

Hi! I have family in Barcelona and go there often. Unfortunately its been degrading considerably in the last few years, one of the reasons why I didn’t end up there myself.

As you suspect already, there are chances of a corralito or something similar taking place in Spain, and its not just me saying it, its Economy Nobel Paul Krugman saying it.

http://economia.elpais.com/economia/2012/05/14/actualidad/1336999189_892398.html

http://www.elmundo.es/elmundo/2012/05/14/economia/1336982422.html

What are the chances of this happening first in Greece and then in Spain? Significant enough that you should take action. Spain is already devaluating via reduction of salaries but its just not enough, eventually they will have to do something, and the big players already moved their money out. Once again, it’s the low and medium class which will get hurt the most.  So going to your first question:

first, the chances of a corralito happening in Spain and what “signals” we could watch for in order to see it coming. Most probably there is a correlation between this and Spain leaving the eurozone.

The signals are everything you’ve been seeing for the last few years, the crisis all around you is textbook, almost a copy of what happened in Argentina in 2001. High unemployment, increase of poverty, reduction of the standards of living, increased  taxations, impossible debt and a construction bubble that burst leaving the country in awful financial shape.  Finally, you have a currency such as the Euro, which can easily flee the country. This is a key point because it indicates that when the time comes a corralito must be enforced to keep everyone from running from the sinking ship.  You no longer have to worry about seeing these signs or not, but you should be worried about getting hurt as little as possible when it happens. About the second part of your question, yes I believe its very likely to end up detaching from the Eurozone and only the stronger player remaining within the EU, or maybe turned into an Eurozone Grade A and B, so as to protect the countries that are still afloat from going down with the ones that are sinking. A worst case scenario would be a total disintegration of the EU, but I believe they will try to avoid it as much as possible.

- second, what measures would you take to secure your money, ie to protect it against a corralito,

It will depend mostly on how much money you have. Banks in Spain simply aren’t safe for you, so any money in it is at risk. I would have at least a month worth of expenses in cash at hand, in Euros. This you will need during the first weeks. If Spain goes Argentina December 19th 2001, it will not be pretty, so also stock up on the basics so often mentioned here in my blog, not forgetting about food, water, any medications you may need, some tool for self defense, hopefully a firearm which you can legally own in Spain. I know that what you are looking at today is of concern, and I’m not trying to be a jerk but the worst is yet to come. You will have to learn to fend for yourself in terms of security because the Spain of the future will be more dangerous than the one you know now.

If you have more money then you have to think what to do with it. A percentage of it will be safe in precious metals, if you have more or if you want to diversify your assets and a trip to Switzerland is a good idea. No doubt that’s what many rich did already. Stocks would be safe in theory, but given their volatile nature I don’t feel comfortable with them, especially for economic disaster planning.

The “Bancolchon” (matress bank) is viable but up to a certain amount of cash. Say you have a pile of Euros under the mattress today, and tomorrow they bring back the peseta which you have a limited time to exchange  your Euros for at a disadvantage rate, then your cash isn’t protecting you much. In this case money in precious metals or in a foreign account is safe until the dust settles and you can later exchange for whatever currency or rate becomes standard. You have a point about Swiss banks throwing Spain and Greece citizens under the train if the governments ask for their citizen´s information. You would have to go looking to Panama or Singapore for off shore banking. In spite of this possibility having at least the money outside Spain would protect you from the imminent effects of the corralito.

I´d stop looking for signs, they are all already there, and do what you can to protect your assets right now. The situation in Spain is bad and will keep getting worse. The only question is how bad will it get for the rest of Europe and how long can they keep the EU together.

Join the forum discussion on this post!

FerFAL

  1. A few other banking options you did not mention:

    -Hong Kong: very easy to set up a bank account in Hong Kong. In fact, it is very easy to open a “business” in Hong Kong. The disadvantage is, if you try to open a business without going TO Hong Kong, it takes a proxy of sorts to do it for you, which costs money (though, not an insane amount). But if you can open a bank account in Hong Kong, this is a very safe place to have your money. And if you open a “business” in Hong Kong, you can likely shift much of your earnings there without being subject to Spanish taxes. Opening a business in HK only takes a few days, at most, and a bank is even easier.

    -Cayman Islands: this is a very widely known and used tax shelter. It is used not only for the low taxes, but because of the privacy they entrust to their patrons. I would not see it as the same reliability as Hong Kong, but it is a bit more private, and a bit cheaper.

    Finally, depending on how the election in the US goes, for the time being the EU is very strong against the US dollar. It would not at all be a bad idea to swap euros for dollars right now while the euro is still relatively strong. Of course, this requires *some* knowledge of how to actually get involved in a currency market.

    The calculation here is that, while the US dollar may not be *the* strongest currency, it, like the british pound, is a currency controlled by the same people who control the budget. The euro or any other “global” currency is doomed to fail by design, since fiscal policy can never be in line with monetary policy. With countries printing their own currency, however (e.g. USD, GBP) this is not an issue. And as I said, since right now the euro will fetch you more than a dollar, it is not a bad idea to swap your euros for dollars. The *only* possible way this could backfire is if the dollar absolutely tanks (very unlikely) or the euro recovers to the point of being stronger against the dollar than it is today (also very unlikely)

    Hope this is useful food for thought

    -El Gringo

  2. scandinavian says:

    I’d just like to add that pretty much any bank is unsafe as it is, there simply isn’t any safe bank since they are interlocked with the modern banking system. Pretty much every bank in the Euro-zone is becoming owned by the governments partially or as a whole. You also need to understand that cash in the bank may sound good but not having access to the money is just as bad as not having the money at all. The “system” has been tested in financially stable Sweden and it took roughly 9 months for people to get their money when a small bank went under. Can you sustain yourself with your savings locked up for 9 months?

    I wouldn’t trust any part of the financial system as it is considering what is happening. Buy everything you need for the next year is probably the best investment you can make, food is rising sharply as it is so you can probably not go wrong by buying food for $1000 if you have it to spend, buy clothes and shoes, etc and keep some cash on hand. I don’t think you want to have metals in the future either, an ounce of gold is simply to valuable to ever be able to use in trade if you need to, an ounce of silver is approaching value levels which are to high to use for barter.

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