Moving Back to Canada
Moving Back to Canada

Moving Back to Canada - Foreign Exchange Considerations

This is one of the trickier aspects of returning to Canada for citizens who have lived abroad for many years and want to repatriate some or all of their money back to Canadian dollars held in Canada. There are several aspects to foreign exchange considerations:

  1. Timing - the most important one.

  2. "Hedging" - balancing your risk.

  3. Offshore banking - where to keep your money so it is safe and so you can move it quickly and easily around the world to take advantage of opportunities and your changing personal circumstances.

Part 1: Timing

The key word for understanding foreign exchange is Timing.

When moving back to Canada some years ago, I personally fell into the trap of wanting to have my money in Canada when I arrived back. I converted our holdings to CAD and set up life here in Canada with those funds. Due to exchange rate changes in the months preceding our return, I lost CAD 14,000 on the conversion rate difference from my earlier projections. Had I waited for a more favourable rate, I could have recouped most or all of these lost monies. As exchange rates go up and down over the years in fairly clear patterns, timing becomes the key variable.

As of the latest update to this document (May 2017), the Canadian dollar (CAD) is at its lowest level compared to the US$ (USD) in many years. Given this situation, should you convert some or all of your foreign currency back to Canadian dollars right now?


In summary, timing is the key consideration for moving some or all of your monies back to Canada when you are returning to reside here.


Timing Considerations: "When should I convert to CAD?"


Key Question: When will you need the money in Canada?

Major costs in Canada when you return can be the purchase of real estate for living in or investment, a vehicle, or even money for a post-secondary education for your child. Living expenses in major cities in Canada are continually rising, so plan on having enough cash in Canada to live comfortably, too. Clearly, bringing some money to Canada is essential.

But how much?


Considerations:


The USD - CAD Dilemma

I have added some USD foreign exchange considerations to the "Moving Back to Canada from USA" page, which can give you some general ideas.

The opportunity facing Canadians considering moving their USD funds to CAD is embodied in this chart:

Quite simply, the mid-term projection of the USD is anyone's guess, but as of mid-2017, it is very strong and this is certainly a very, very good time to move money back to CAD from USD. The USD seems to be strong, but there are so many variables changing in world economics that is very hard to predict what will happen next.

This leaves Canadians moving back to Canada with some fundamental questions to consider:


If you need the money to be in Canada now, or very soon, exchanging now from USD may save you from future losses from a poorer exchange rate. If you are exchanging GBP to CAD, BREXIT implications could go either way: Strengthening the GBP or weakening it, so there is no definitive timing implication for that currency.

If you can wait for the very long term (5-10 years +), You can more accurately match any currency's high exchange rate to your needs.

If you are not in a rush to move your money back to Canada, and want to balance the risk of your holdings (called "hedging"), perhaps keeping 40% in USD, 40% in CDN, and the remaining 20% in EUR, YEN, or CNY (RMB) would make sense. More below, in "Part 2: Hedging".

The Canadian Economy - Past, Present, and Future

"Hewers of wood and drawers of water"

This used to describe the early Canadian economy. Resource-based. And we did most of our trade with the U.S. .

Today, the Canadian economy is more diversified, but we still retain some of the economic pillars of the past. What Canada looks like now:


The challenge for the present and future? We still do 3/4 of our trade with the U.S.!

Another old saying:

"When America sneezes, Canada gets a cold".

Given our reliance on the U.S. for trade, and the fact that the U.S. population and economy is 10 times the size of Canada's, is there cause for concern when this friendly neighbour gets economically sick?

Yes.

Implications:

The simplest and most clear message coming from Canadian reliance on our economically challenged neighbour to the south is that you might consider holding a significant part your financial investments outside of Canada and the U.S., in foreign currencies and investments. Switzerland, Germany, Brazil, and China all offer an opportunity to off-set economic risk in the U.S., and by association, Canada.

This is tricky stuff. If you have significant financial holdings in a foreign currency I suggest you consult with a sophisticated financial advisor who understands currencies, specifically.

Part 2: Hedging

"Hedging" simply means balancing your risk or "not putting all your eggs in one basket".

When one currency goes up another goes down, by default. Obviously you want to be invested more in currencies that go "up" over time and not down. However, this is devilishly hard to predict, per the timing issue noted above.

For most people, this means you need another tool: Owning more than once currency so that when one goes down, you have another that goes up. You don't gain...but you don't lose, either, assuming you have spread your risk across several currencies.

If you are getting paid in one currency, and putting away savings for the future, hedging is a powerful risk reduction tool for you.

Example mix, assuming you are still living overseas or are returning to Canada but do not want to immediately convert all your funds:

You have Australian dollars (AUD) 100,000. Here is how you might hedge it:

AUD 40,000 (40%)
USA 21,000 (20%)
EUR 16,000 (20%)
CDN 21,000 (20%)

(The above is just an example to illustrate hedging, not necessarily the best investment mix for you at the time of reading this).

Another example mix, if you want to be a bit more widely invested (slightly higher risk, perhaps, but with profit potential):

AUD 20,000 (20%)
EUR 16,000 (20%)
CDN 21,000 (20%)
CHF 19,500 (20%)
BRL 37,000 (20%)

Holding multiple currencies might seem complicated, but it really is quite simple. If in doubt, always hold at least 2 different major currencies, ones that are not closely tied together For example, the USD and CDN are too closely tied to be considered an effective risk management strategy. CDN and EUR are not closely tied together. Holding funds in these two currencies would be the start of an effective hedge strategy.

Part 3: Off-shore Banking

Off-shore banking might conjure up images of people hiding their funds from tax collectors of their country of residence. While off-shore banking might be used for unsavory purposes, accounts with banks that are legally structured in odd places in the world are really just great banking services for lots of normal expatriates who do not want their accounts and funds controlled by countries who have lots of bank and currency controls.

Opening an international off-shore bank relationship with a major international bank makes sense for many expatriates and Canadians returning to Canada to resume residency. You can hold multiple currencies in accounts with the bank and access your accounts and funds electronically from anywhere in the world. HSBC is an example of one such bank. On top of offering accounts with multiple currencies, HSBC will also give you an international credit card that is not linked to the country you are resident in. It comes with high fees for usage, but while traveling or between country residencies, it might make sense. (Note: This is not an ad for HSBC and I do not work for them or are paid by them in any way).

Per the hedging discussion above, off-shore banking is a great way to set up a simple hedging strategy. As international banks understand multiple currencies much better than local banks, they are in a position to make your hedged savings happen quickly and easily.

One final note on off-shore banking:

Integrity. I strongly suggest staying in your integrity at all times with off-shore banking, tax considerations, or any other question when moving back to Canada. My Godfather, who lived a quietly wealthy life, explained it to me this way:

"I never cheat on my taxes. And I sleep well at night."


Your ideas, considerations, and experiences?

Please share with me your ideas, considerations, and experiences relating to foreign exchange. I will post them here as help for others. Along with a credit to you will be a big thank you on behalf of the many people you will be helping!

Paul Kurucz
Canada

This page up to date as of May 2017


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Paul Kurucz - Canada


A happy client:

Hi Paul,

Just to update you - we landed and sailed through customs! So thank you so much for all of your advice...It was a thoroughly pleasant experience...

... this is to say thank you for everything. Your advisory has been so incredibly helpful and saved us considerable time and removed room for error.

With best wishes,

Caroline

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