Can Irish people borrow in US dollars?

The Central Bank
#1

It recently struck me that the ideal credit situation for a Eurozone-based person is to borrow in US dollars.

The dollar is hugely overvalued against the Euro, and is falling against it.

However, the ECB is determined to make sure the fall in the value of the dollar is “orderly”. What this means is that every time the dollar falls more than a cent in a day, the ECB will aggressively buy USD.

This guarantees a steady, rather than violent, appreciation in the Euro vs USD.

It seems to me that for a European to borrow from an American is a terrific win-win scenario: the creditor has a borrower who’s an extremely low risk, and the borrower has a creditor who keeps getting cheaper to service as time passes.

So whats the problem with this scenario? Is it impossible for an American to legally loan money to an Irish entity? Or is it simply impossible for the theoretical American to legally enforce the debt in Irish courts?

It seems doubtful that, in such a globalised nation as Ireland, that there’s no legal facility for International debt.

Next: how would you best go about it? Would you set up a company in Ireland which’d have certain assets, which would seek debt from US institutions?

#2

I think this would be more suited to askaboutmoney.com really.

#3

Perhaps, but I’m not a member of that forum, and it’s not as if availability of credit is in any way irrelevant to property prices.

#4

…and hence take a forex risk as well as a risk on whatever you spend the cash on.
good luck!

#5

You think that the dollar will fall, but you don’t really know for sure. Warren Buffet bet against the dollar in 2005 and lost heavily, do you think you are a better investor than he is? :wink:

#6

Thats absolutely far from guaranteed.

#7

I’d say the risk is far more than outweighed by the reward. Fundamentally, the long-term trend of the dollar vs the Euro is definitely downward.

3 times out of five, the monthly payment will have fallen in Euro terms. If you’re prudent and don’t splurge all of that savings, you’ll be more than able to weather the occasions where the euro falls against the dollar.

Basically, I’m aware of the risk but I’m also aware that the likelihood of a sustained long-term fall in the Euro against the dollar is miniscule. Like the Zimbabwe dollar becoming the new Sterling.

I’d advise buying a house in Dublin now, if the mortgage was denominated in dollars. The house is likely to retain over time the dollar value of the figure you paid for it, even though its Euro price will fall.

#8

You would be paying a higher interest rate as well as having the FX risk. Why not just buy a CFD or option on the dollar if youa re so convinced of its demise?? Why take risk of capital depreciation on the house as well as assuming the FX risk and paying a higher interest rate? I think you are over estimating your ability to predict markets .

#9

Ordinarily you’d have a point, but the fact remains that the USA cannot reduce its twin deficit without an economic collapse or politically impossible cuts to the budget. The other option is major tax rises which are both politically impossible and would cause an economic collapse. The leadership of the USA is in an inescapable bind. The least painful option is for the USA to inflate away its problems.

Some macro economic forecasts are hard to make, such as whether China will beat India or not. But there are two certainties for the next decade or so: the US currency will continue to fall as confidence wanes in its declining fortunes and Zimbabwe will remain a basket case.

Frankly, the odds of the USA reversing its course are the same as the risk of anything else. Like life on Earth being destroyed by a comet.

#10

Can you borrow in USD?

Simple answer is yes. You ask your lender for a foreign currency debt/loan.

If the lender agrees, then the debt will be at a rate of interest set by the central bank of the country/union who’s currency the debt is in (plus a bit for your lender). You will however run the risk of currency fluctuaitons.

I know some people who have done this, had their debt in Yen last time I asked, but where smart enough to get a deal from their lender that allowed 2 or 3 free currency swaps per year at aggreed intervals.

That said, I know people who do FX dealing for a living, and won’t under any cicrumstances put their own home at the vagaries of the currency markets.

Meant to add, it’s not uncommon for commercial mortgages to be in foreign debt, but they tend to be multi million.

Blue Horseshoe

#11

Usually safest to have your mortgage in the currency of your salary. (At least you go down with the herd :unamused: )

#12

When this was first posted, the Yoyo was finishing the week at USD1.312.

Now it’s USD1.324

Even with all the high US growth and low unemployment, the dollar is in a controlled, managed, sustained slow-motion fall against the Euro.

Bush and his fellow citizens need to borrow form other nations like mad to keep the USA afloat. And that makes the dollar inherently weaker.

The reason the dollar doesn’t outright collapse is because the people from whom the USA borrows (us, Japan, China) desperately want to prevent a rapid, “disorderly” crash.

If the rate keeps slowly adjusting upwards as it’s currently doing, at only a cent or so per quarter, then carnage and defaults can be averted.

In short, events are showing that if we’d borrowed in dollars when this thread was posted, we’d have significantly cheaper repayments now.

Last Friday, USD1000 in loan repayments would cost EUR764.

Today, the same amount would be under EUR756.

A year from now, expect it to cost EUR700 or less.

Naturally, you should be prudent and don’t splurge the savings you have made, in case the USD has a dead cat bounce or two, but the risk is very low.

It is in the interest of almost everyone who has the power to decide these things for the USD to continue to fall slowly but surely, so that’s what will happen until the fundamentals change.

#13

You would have to be quite insane to bet your house on FX rates. Why not just play the FX markets if you’re so sure you know something that no-one else does?