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Posted by on Mar 14, 2014 in Blog, Life overseas, Running a business | 0 comments

How to avoid becoming a starving billionaire – making sure currency doesn’t crash your party

How to avoid becoming a starving billionaire – making sure currency doesn’t crash your party

Everyone wants to be a billionaire, but Zimbabwe took it a little far. By 2009, every single resident was a multi-trillionaire. In fact, by the summer of 2008 there was a single bank note worth 100,000,000,000,000 Zimbabwean dollars (100 trillion). It was initially equivalent to about $300 USD, but quickly became worthless – and is now worth far more as souvenirs than it ever was as currency.  Any wealth that was stored in local currency got wiped out – a lot of people lost everything.

Don't worry guys, breakfast is on me.

Don’t worry guys, breakfast is on me.

Thankfully, the kind of currency destruction that Zimbabwe experienced, where inflation was 89,700,000,000,000,000,000,000% at its peak (89.7 sextillion percent in case you were wondering), isn’t a common event.  Still, currency matters, and you should care about it for two big reasons…

  • Imploding currencies tend to go hand-in-hand with excessive inflation.  Inflation makes things more expensive over time. For example, the inflation rate in Kenya was 10.1% in 2012 which meant that a pack of gum purchased at the start of the year and cost 1 Kenyan Shilling would cost you 1.101 Shillings at the end of the year.  This 2 minute video does a good job explaining inflation.
  • Currency fluctuations can also seriously eat into your profits over time.  Imagine for a minute, that you own a hiking company in Argentina. You have set the cost of the trip on 1st January 2012 at 4348 Argentinian Pesos which is the equivalent of $1000 United States dollars (USD). Two years later, that 4348 pesos is worth only $525 USD.  In just two years, you are offering the same service for half the cost.  Oops!

I’d hate to see you become the richest person in the universe, only to lose it all in a couple of days of hyperinflation or bad currency management. It is definitely better to be prepared.  So here are some things to consider, and some tips to make sure you minimize risk:   Please Note I am using USD as the primary example of a safe currency because it is the most widely accepted currency around the world.  However, other safe currencies would do the job just as well. 

1. Transfer any surplus funds you have into US dollar bank accounts

If you run a business in a developing country, you will no doubt be doing a lot (if not all) of your revenue in local currency.  Transferring local currency profits into US dollars can be a very effective way of insulating yourself from currency risk.  A lot of countries will allow you to set up in-country US dollar accounts in addition to local currency accounts. The restrictions on the use of this US dollar account vary, but the ideal situation is that you set up the account as soon as you move to a new country, and then as soon as you are operating, you start transferring any profits you don’t think you will immediately need into USD.

The benefit of doing this with a USD account is that your money is protected from the wild currency swings that sometimes happen in developing countries.  What this means in a country with rampant inflation is that instead of holding on to a currency that buys you less every day, you are holding a currency that buys you more every day.

2. Invoice in USD

Invoicing in USD is probably only an option for certain businesses that interact with customers who have access to USD.  If you are primarily dealing with locals then it is highly unlikely anyone will be paying you in USD.  Additionally, some countries such as Ghana, do not allow you to invoice in USD and force you to invoice in local currency.   However, in other countries it is perfectly legal and there are immediate advantages to receiving USD because you are never exposed to local currency fluctuations, nor do you have to deal with the effort of affecting a bank transfer to turn your cash into USD (which can be quite an ordeal in some countries!).

3. Regularly review inflation and adjust prices accordingly.

This is the most important point from a business perspective.  You will probably be quite aware of currency movements because anything you import into the country, any bills you pay overseas, and any travel you do internationally will be paid in USD.  Each time you look at a bill denominated in a foreign currency you will realize what is happening.  A deteriorating local currency almost always means that your costs increase.

You should plan to adjust your prices regularly – once a year, twice a year, or more regularly than that –  whatever makes sense to you and your business.  Whatever you do, decide early and be consistent about it.  Customers complain about price increases, but it is completely a way of life and every other serious business in the market is doing exactly the same thing.  They can’t run at a loss and neither can you.


Being smart about currency will serve you well in the long run, and importantly, will leave options open to you if you ever decide to return home.  You can’t spend Argentinean Pesos back home, and if you haven’t made adequate price adjustments over time you might find that even though you have run a successful business you can’t afford to go home – even if you want to.

As a postscript, there are actually some developing countries where you can come pretty close to sidestepping currency issues entirely.  Some examples include:

  • The 14 Countries that are members of the West African Economic and Monetary Union which have their currencies pegged to the Euro (it was originally pegged to the French franc back in 1948).
  • Morocco also pegs its currency to the Euro
  • Countries like British Virgin Islands, Ecuador, Panama and the Bahamas either use USD or peg their local currency to USD.
  • Small pacific island countries such as Tuvalu, Kirabti, Nauru use the Australian dollar

Do you have stories where you have successfully managed currency swings?  What about situations where currency has kicked you in the ass?  Please share below.  It would be great to hear your stories.

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