Almost every investor I know has a plan for the next crash.
They know how far the S&P 500 fell in 2008, how long the Nasdaq took to recover after 2000 and what happened in March 2020. They have stress scenarios, rebalancing rules and, in some cases, options. They even contemplate war or a pandemic.
Very few have a plan for something that has happened far more often than it might seem: the country where they keep their money deciding that the money is no longer entirely theirs to use.
I mean specific, formal measures with a documented history. Banks that close on Monday and reopen three weeks later. Deposits converted into another currency by decree. Exchanges that reopen without allowing you to sell. Gold you must surrender at an official price. Bonds whose terms change retrospectively. Savings that become worthless after a change of regime.
These episodes challenge a dangerous assumption: that the worst thing that can happen to your wealth is a market collapse.
It is not. The worst-case scenario is your country.
Two very different ways to lose money
Two kinds of loss are routinely confused.
Market risk is the risk that what you own falls in price. An ordinary crash does not, by itself, extinguish ownership. Nor does it guarantee liquidity: trading can be suspended, markets can close and restrictions can apply. In broad markets that survived, time has repaired many losses. Not all of them.
Here, I use country risk as an umbrella for jurisdictional risk: what official decisions and institutional fragility can do to access, convertibility and rights over your wealth. It is not simply sovereign default risk, nor is it separate from price. The two interact.
- You lose access: you cannot withdraw, sell or move the asset.
- You lose convertibility: a decision changes the currency, maturity or terms.
- You lose economic rights: your position is expropriated, repudiated, written down or transformed, with different consequences and compensation in each case.
The danger is that it rarely arrives alone. It often coincides with a crash: assets and the currency fall, capital flees, and the incentive to close the door grows.
It can take away liquidity precisely when you need it most.
A crash says: ‘Your asset is worth less.’ An intervention can say: ‘You can no longer use it.’ Waiting for recovery does not solve both problems.
Survivorship bias: why your data misleads you
If it matters so much, why do so few investors model it?
Much of the story about long-term returns comes from the United States: Shiller’s series, Siegel’s studies and countless backtests. It is also one of the markets that survived the twentieth century most successfully, without revolution or the prolonged disappearance of its equity market.
In 1999, Philippe Jorion and William Goetzmann studied 39 markets in the Journal of Finance. American real returns were exceptional. Other markets suffered long interruptions or disappeared. Once those markets were included, the equity premium looked less generous than it did in American data alone.
Dimson, Marsh and Staunton made the same essential point in Triumph of the Optimists: measuring a century means including markets that ended at zero. Russia and China ceased to exist as investable markets and vanish from many familiar backtests.
An investor in 1900 could reasonably have invested in Russia, an industrialising empire; Argentina, among the world’s richest countries per person; or Germany, an industrial and scientific powerhouse. None was obviously an absurd bet.
Much of the data that reassures us comes from the country where things went well.
Remove the markets that disappeared from your backtest, and you remove the warning too.
When the sovereign was the risk (1340–1800)
Long before modern stock exchanges existed, lenders had learnt the fundamental lesson of country risk: the most dangerous borrower is the one who can change the rules.
The bankers of Florence
In the fourteenth century, the Bardi and Peruzzi were two of Europe’s largest banking houses. They financed Edward III of England in his war against France. After the defaults of the early 1340s, both failed. Historians debate the importance of the English default relative to Florence’s own crisis and internal management. It was not a single-cause collapse. Lending to the sovereign was still no safe haven.
Later, loans to Edward IV of England helped bring down the Medici bank’s London branch. In 1494, the family was expelled from Florence and its assets seized. The great Renaissance financial network ended under a change of regime.
Sixteenth-century England: debase and confiscate
Henry VIII offers two techniques that would keep returning.
The first was the dissolution of the monasteries (1536–1541): the Crown appropriated the land and property of more than eight hundred religious houses.
The second was the Great Debasement (1544–1551). To finance war, the Crown reduced the silver content of coins. A shilling retained its name and legal value but contained less metal. Saving money no longer meant preserving purchasing power.
1557: two crowns, the same failure to pay
In 1557, western Europe’s two great monarchies suspended payments almost simultaneously. In France, Henry II stopped servicing the Grand Parti de Lyon, a large loan placed with bankers and smaller investors attracted by its interest payments. In Spain, Philip II suspended payments that year and would do so again in 1560, 1575 and 1596.
The historians Mauricio Drelichman and Hans-Joachim Voth have shown that the Spanish suspensions were, in practice, renegotiations. Genoese bankers who diversified and shared risk continued, collectively, to make money. Other creditors with concentrated exposure, including the Fuggers of Augsburg, paid dearly. The lesson was already familiar: sovereign risk falls hardest on those who are concentrated.
Seventeenth-century England: the Tower’s gold and the Stop of the Exchequer
In 1640, Charles I seized the gold and silver that merchants had deposited at the Royal Mint in the Tower of London, supposedly the safest place in the kingdom. He returned it as a forced loan, but lost their trust. Merchants began turning to private goldsmiths, predecessors of modern banking.
Thirty years later, in 1672, his son Charles II ordered the Stop of the Exchequer, suspending repayment of the Crown’s debts to those very goldsmith-bankers. Several failed, taking their depositors with them. The private refuge that had emerged to escape the Crown was caught by it after all.
Eighteenth-century France: owning coins becomes an offence
In 1720, as John Law’s system collapsed, France tried to sustain paper money by prohibiting individuals from holding more than 500 livres in gold and silver coins. Searches were permitted and informants encouraged. The asset people were fleeing towards was itself prohibited.
The Revolution later issued the assignats, which ended in hyperinflation. In 1797, the bankruptcy of the two-thirds replaced that proportion of the public debt with securities that lost almost all their value.
Default, debase, confiscate, prohibit. The techniques of the twentieth century had already been invented.
The comfortable investor of 1890
Imagine a rentier in London or Paris at the end of the nineteenth century.
He lives through the first age of financial globalisation: mobile capital, the gold standard, telegraph connections and banks distributing faraway bond issues. International diversification is not merely possible. It is prudent.
Our rentier holds three kinds of security.
Argentine bonds. Argentina is a land of opportunity: railways, ports, meat and grain exports, mass European immigration. In 1890, its debt crisis almost brought down Barings, one of London’s most prestigious banks, which needed a rescue organised with the Bank of England’s intervention. Argentina suspended payments. Our rentier did not live in an exotic market. He lived in the City.
Ottoman bonds. The Ottoman Empire had borrowed in European markets for decades. It suspended payments in 1875. The consequence was as unusual as it was revealing: in 1881, the Ottoman Public Debt Administration was established under representatives of European creditors. It directly administered specified imperial tax revenues to repay bondholders. Creditors recovered a portion. It took years, and something approaching foreign intervention.
Russian loans. This is the hardest story. In the decades before the First World War, Russia raised enormous sums in France. French bank branches sold Russian loans to small savers as safe investments, supported by the political alliance between the two countries. More than a million French families came to hold them.
In early 1918, the Bolshevik government repudiated the tsarist regime’s debts.
The new regime repudiated those securities; payments stopped and their economic value collapsed. Decades later, the Franco-Russian agreements of 1996–1997 provided for US$400 million covering bonds and other property claims together, a limited settlement relative to the losses. The interstate agreements did not extinguish all private bondholders’ rights. By then, most of the original savers had died. The official agreement and the French government’s explanation of private rights matter to that distinction.
Source · official agreement
Source · French government’s explanation of private rights
Our rentier was following the textbook: diversify countries and issuers. Yet he depended on promises by states whose willingness and capacity to pay over thirty years nobody could guarantee.
In 1913, investing in Russia, Argentina or the Ottoman Empire was diversification. By 1920, it was a lesson.
Germany, 1923–1938: when the door closes from within
In barely fifteen years, Germany offered almost the entire catalogue of country risk.
1923: hyperinflation. In the Weimar Republic, prices multiplied to almost incomprehensible levels. Those holding their wealth in mark-denominated deposits, bonds or insurance policies lost virtually everything. There was no formal confiscation: the state financed its deficit by printing money and savings lost their value. People holding real assets, foreign currency or property abroad experienced a very different crisis from those who trusted the mark.
1931: exchange controls and frozen creditors. After the banking crisis of summer 1931, Germany imposed exchange controls and concluded the standstill agreements, freezing repayment of short-term foreign credit. International creditors did not formally lose their rights. They could not collect on them.
1931: an exit tax is born. In December 1931, Brüning’s government, which was not Nazi, introduced the Reichsfluchtsteuer, literally the ‘Reich flight tax’. It imposed a 25% charge on the wealth of people leaving Germany above specified thresholds. Its stated aim was to stem capital flight during the crisis.
What happened next is the most important part. When the National Socialists came to power, the instrument already existed. Thresholds were lowered and it became a means of expropriating people trying to escape, particularly Jewish people. Other charges, foreign-exchange transfer restrictions and eventually direct confiscation were layered on top.
Emergency powers can outlive the emergency. They remain available to the next government.
Leaving a country can have legitimate tax consequences, but the design and use of those consequences reveal much about the relationship between the state and someone trying to leave.
A totalitarian regime did not invent the tax on flight. It inherited it.
Even the country of the dollar: the United States and Britain
This is where many readers are surprised. The United States and Britain suggest private property, courts and deep capital markets. Neither stood outside this history.
The United States, 1933: gold that had to be surrendered
In March 1933, during the banking panic, Roosevelt declared a national bank holiday. It lasted about a week; banks judged solvent reopened first.
On 5 April, he signed Executive Order 6102. It required gold coins, bullion and certificates to be delivered to Federal Reserve banks or member banks, with compensation at the official price of US$20.67 per ounce. Exceptions included up to US$100 per person, professional uses and specified collectors’ coins. Non-compliance could bring fines and imprisonment.
The sequence that followed makes this an instructive case of country risk:
- In June 1933, Congress invalidated gold clauses, which allowed payment to be demanded in gold or its equivalent. In 1935, the Supreme Court upheld their invalidation in private contracts in Norman.
- The Gold Reserve Act of 30 January 1934 authorised a new determination of the dollar’s gold value. The presidential proclamation of 31 January set the equivalent of US$35 per ounce.
Someone who surrendered gold at US$20.67 missed the 69% official revaluation that benefited the Treasury. General restrictions on private ownership were lifted at the end of 1974.
The irony remains: the safe haven became subject to compulsory, compensated surrender. This was not seizure without payment. The issue was who could determine the terms on which the owner left that haven.
Britain, 1939–1979: forty years with the door half closed
Britain introduced exchange controls at the start of the Second World War and later consolidated them in the Exchange Control Act 1947. What began as a wartime measure lasted four decades.
Taking capital out required authorisation. In 1966, Harold Wilson limited foreign currency for tourism outside the sterling area to £50 per person. Even a holiday in Spain depended on how much the state would let you take abroad.
The controls were not abolished until 1979, under Margaret Thatcher’s government.
This was a democracy with independent courts and a free press. For four decades, its citizens still could not freely deploy their wealth outside the country.
A democracy, too, can close the door when it believes the emergency justifies it.
To zero: when the regime disappears
In the extreme cases, investors’ rights disappeared. Other regime changes or wars brought prolonged closures, partial compensation or litigation. Not every loss in this section was a permanent zero.
Russia, 1917–1918. Besides repudiating foreign debt, the new Soviet regime nationalised banking, industry and land. Shares in Russian companies, listed and admired only a few years earlier, ceased to represent enforceable ownership rights under the new system. There was no long-term market recovery for those holdings, because the market itself ceased to exist.
Central and eastern Europe, 1945–1953. After the Second World War, regimes installed within the Soviet sphere nationalised companies, banks and land. Exchanges closed. Some monetary reforms, such as Czechoslovakia’s in 1953, destroyed much of the public’s accumulated savings, provoking workers’ protests.
China, 1949. Shanghai had been one of Asia’s great financial centres, with a stock exchange, international banks and a cosmopolitan business community. Following the Communist victory, exchange trading ceased and private business ownership was absorbed by the state. Earlier bonds remained unpaid for decades, although later agreements covered certain creditors, including British holders in 1987. Mainland China’s exchanges did not reopen until 1990.
Japan, 1945–1949. There was no confiscation of shareholders’ holdings here, but there was something investors often overlook: the Tokyo Stock Exchange was closed from the end of the war until 1949. Almost four years without its organised market.
Cuba, 1959–1960. The revolution nationalised American-owned businesses and much Cuban private property. The US commission recording claims certified almost 6,000, worth around US$1.9 billion at the time. More than sixty years later, they remain uncompensated.
Spain, 1936–1939. The Francoist authorities denied validity to notes put into circulation by the Republican Bank of Spain after 18 July 1936. Measures began during the war and continued through its end. Families who had saved in banknotes that were legal when received found themselves holding paper rejected by the victorious regime. The Council of State’s account records the sequence and its treatment of those banknotes.
Source · Council of State’s account
Egypt, 1956. Nasser nationalised the Suez Canal Company, whose shareholders were predominantly British and French. In subsequent years, nationalisation spread to banks, insurers and large businesses. Many members of foreign communities that had lived in Egypt for generations left with little of what they had owned.
Uganda, 1972. Idi Amin gave the population of Asian origin, tens of thousands of people, ninety days to leave. Many were traders and business owners established for generations. Their businesses and property were redistributed, and most left with very little money.
Iran, 1979. After the revolution, the new regime nationalised banking and much of industry. A few months later, the United States froze Iranian assets within its jurisdiction. Once again, the risk ran in both directions.
These were not simply bad investments. The order protecting ownership and allowing assets to be traded could disappear or be suspended.
A market may recover. If your rights disappear, the rebound may belong to someone else.
Civilised confiscation: the second half of the twentieth century
After 1945, risk in the West also became technical, gradual and less visible.
Financial repression
After the Second World War, the United States, Britain and many other countries had very high public debt. Rather than default, they reduced it through a less visible mechanism: years of interest rates below inflation, combined with regulations requiring or encouraging banks, pension funds and insurers to buy government debt.
Reinhart and Sbrancia studied this financial repression and its contribution to liquidating public debt. Savers collected their coupons while losing purchasing power.
There is no dramatic headline for that. Which is precisely why it works.
France, Mexico and Italy: three different techniques
France, 1981–1989. François Mitterrand’s government nationalised major industrial groups and most banking that remained privately owned, while tightening exchange controls. In 1983, it even restricted foreign currency for holidays abroad. Controls were not fully dismantled until the end of the decade, as part of European capital liberalisation.
Mexico, 1982. In the debt crisis, President José López Portillo nationalised the banks and imposed exchange controls. Dollar deposits at Mexican banks, known as mexdollars, were compulsorily converted into pesos at a rate far below the market rate. People who thought holding dollars had protected them discovered that these were dollars inside the Mexican perimeter. That made them convertible by decree.
Italy, 1992. Amid financial turmoil, Giuliano Amato’s government approved an extraordinary 0.6% levy on bank and postal deposits. It applied overnight. Six in a thousand may sound small. The precedent mattered: part of account balances could be taken by decree, without warning.
Latin America: the laboratory
Argentina, 1989. Under the Bonex Plan, term deposits were compulsorily exchanged for ten-year dollar-denominated government bonds. Someone with a thirty-day deposit suddenly held a bond maturing in a decade, with a market price far below its face value.
Brazil, 1990. The Collor Plan froze current and savings account balances above a relatively modest threshold for eighteen months. A large share of the country’s financial savings was blocked at once. Inflation continued while the money was frozen.
The end of the Soviet bloc
USSR, 1991. Valentin Pavlov’s reform withdrew 50- and 100-rouble notes with three days to exchange them and limits per person. Inflation in the early 1990s then eroded savings accumulated in Soviet accounts.
Russia, 1998. In August 1998, Russia defaulted on its short-term domestic debt, the GKOs, devalued the rouble and imposed a temporary moratorium on certain payments by Russian banks to foreign creditors. International funds that believed forward rouble contracts had protected them discovered that their local counterparties could not, or were not permitted to, pay.
In the second half of the twentieth century, states learnt that outright confiscation was unnecessary. Changing the terms, maturity or currency could be enough.
The twenty-first century (I): banking crises, frozen deposits and bail-ins
This is not remote history. The twenty-first century demonstrated it again.
Ecuador, 1999–2000. The government declared a bank holiday and froze deposits. Soon afterwards, Ecuador abandoned the sucre and adopted the dollar at a rate that had destroyed much of the value of local-currency savings.
Argentina, 2001–2002. The textbook case. In December 2001, the government limited cash withdrawals to a small weekly amount: the corralito. In 2002 came asymmetric pesification. Dollar deposits were converted into pesos at a rate far below the market rate, while certain dollar debts were converted at a different rate, more favourable to the debtor. The peso lost more than two-thirds of its value against the dollar within months, and Argentina defaulted on its sovereign debt.
Argentina’s story did not end there. In 2008, the state nationalised private pension funds. In 2012, it expropriated a majority stake in YPF from Repsol. Between 2011 and 2015, and again from 2019, the cepo cambiario restricted access to foreign currency. For most individuals, those restrictions were not lifted until 2025.
Zimbabwe, 2007–2009. Hyperinflation reached figures that are difficult even to express. In 2009, the country effectively abandoned its own currency. Zimbabwe-dollar bank balances ceased to have practical value.
Iceland, 2008. After its three major banks collapsed, Iceland imposed capital controls in November 2008. They were not substantially lifted until 2017. An emergency measure lasted almost nine years.
Greece, 2012. In the Greek debt restructuring, private bondholders took a nominal haircut exceeding 50%. The most important technical detail was different: Greece passed legislation retrospectively introducing collective action clauses into bonds issued under Greek law. That allowed the restructuring to bind all holders if the required majority accepted it. The country unilaterally changed the rules of its own contracts because they were governed by its own law.
Cyprus, 2013. Cyprus had spent years attracting international capital within the euro area. In March 2013, its banks closed for almost two weeks. The agreement with the troika imposed a bail-in. At Bank of Cyprus, almost half of uninsured deposit balances above €100,000 was converted into shares in the bank itself. At Laiki, the country’s second-largest bank, uninsured deposits were trapped in the winding-up. Capital controls lasted until 2015.
Cyprus adds an important qualification: the refuge can fail too. Many affected depositors had chosen Cyprus precisely to diversify country risk.
Greece, 2015. At the end of June 2015, Greek banks closed for three weeks. ATM withdrawals were limited to €60 a day and the Athens exchange remained closed for five weeks. Capital controls were not completely removed until 2019.
Europe, 2017. Banco Popular’s resolution wrote down its shares and Additional Tier 1 instruments. Tier 2 subordinated debt was converted into new shares, transferred to Santander for one euro. All deposits were protected. The losses fell on shareholders and holders of those instruments, including small investors who had subscribed to the previous year’s capital increase.
Lebanon, from 2019. For a long period without a formal capital-control law, banks restricted withdrawals and outward transfers in practice. Dollar deposits were trapped, acquiring the ironic nickname ‘lollars’: Lebanese dollars that existed only inside the local system. The Lebanese pound lost more than 90% of its value.
Sri Lanka and Ghana, 2022–2023. Sri Lanka defaulted on external debt in 2022. Ghana restructured external debt and also exchanged domestic debt held by banks, pension funds and local investors. When a state restructures domestic debt, the loss falls not only on distant foreign funds but on its own citizens’ savings.
Deposit freezes, bail-ins and restructurings are different mechanisms. Their shared warning is this: know which right you hold and who can alter it.
The twenty-first century (II): the state acts without a financial collapse
A state need not be bankrupt for a political decision to change your wealth.
Hungary, 2010–2011, and Poland, 2013–2014. Two EU members appropriated private pension savings. In Hungary, private fund members were asked to return to the public system or lose much of their entitlement to a state pension. Most assets, around €10 billion, passed to the state. In Poland, approximately half the private funds’ assets, principally government bonds, were transferred to the public system. Formally, nothing was being confiscated. The pension system was being reorganised.
Venezuela, 2003–2021. Exchange controls began in 2003, followed by nationalisations of oil projects and businesses and three currency redenominations that removed fourteen zeros in total. Bolivar savings disappeared, while foreign companies spent years in international arbitration seeking compensation.
India, 2016. One November evening, the government announced that 500- and 1,000-rupee notes would cease to be legal tender almost immediately. They represented around 86% of cash in circulation. They could be exchanged at banks within a period and subject to conditions, but the practical effect was a sudden interruption to the use of much of the country’s physical money.
China, 2021. There was no confiscation. There was regulation. In July 2021, new rules required school-tutoring companies to operate on a non-profit basis in their principal segment. New York-listed companies lost most of their value within days. Foreign investors also discovered the limits of VIE structures: they owned a vehicle with contractual rights over the Chinese business, not the business itself.
Afghanistan, 2021. After the Taliban took power, the United States froze billions of dollars of Afghan central-bank reserves held in its territory. Whatever the political judgement, the mechanism is the same: a country’s assets depend on the jurisdiction in which they are held.
Canada, 2022. During the blockades and Ottawa protests, the government invoked the Emergencies Act. The economic order required the suspension of financial services linked to prohibited activities, without a prior court order. It was not a general authorisation to freeze accounts because of a political opinion. Finance officials reported around 280 frozen financial products, not 280 people. The Federal Court held the invocation unreasonable in 2024. The Federal Court of Appeal confirmed that conclusion on 16 January 2026, also finding that the government had exceeded its legal authority. Judicial review matters. It came after the freezing measures.
Russia, 2022. After the invasion of Ukraine, the Moscow exchange suspended equity trading for almost a month. When it reopened, foreign investors were barred from selling. Many western funds valued their Russian positions at virtually zero. Meanwhile, western countries froze hundreds of billions of dollars of Russian central-bank reserves and assets belonging to sanctioned people.
Country risk runs in both directions. The country where you invest can close the door, but so can the country where your custodian operates.
In the twenty-first century, a state does not need bankruptcy to change your rights. An emergency, a reform or a sanction can be enough.
The anatomy of country risk: ten mechanisms
Put these episodes side by side and ten mechanisms emerge. It helps to distinguish them, because the appropriate protection differs.
| # | Mechanism | What you lose | Examples |
|---|---|---|---|
| 1 | Debt default or repudiation | Some or all of the principal | England 1340 and 1672, Russia 1918, Argentina 2001, Ghana 2023 |
| 2 | Currency destruction or devaluation | Purchasing power | Henry VIII 1544, Germany 1923, Zimbabwe 2008, Venezuela |
| 3 | Financial repression | Real returns, quietly | US and UK after 1945 |
| 4 | Frozen deposits or bank closure | Access | US 1933, Brazil 1990, Argentina 2001, Greece 2015, Canada 2022 |
| 5 | Bail-in or bank resolution | Depending on the instrument: uninsured deposits, capital or subordinated debt | Cyprus 2013: uninsured deposits; Popular 2017: capital and subordinated debt, all deposits protected |
| 6 | Compulsory conversion | Currency, maturity or terms | Mexdollars 1982, Bonex 1989, pesification 2002, Greek CACs 2012 |
| 7 | Capital controls and exit barriers | The mobility of wealth | France 1720, Germany 1931, UK 1939–1979, Iceland 2008 |
| 8 | Market closure | Liquidity | Tokyo 1945–1949, Athens 2015, Moscow 2022 |
| 9 | Expropriation, compulsory surrender or nationalisation | Ownership or freedom to retain an asset; compensation varies | Monasteries 1536, US gold 1933 (compensated), Uganda 1972, Hungarian pensions 2011 |
| 10 | Regime change, war or sanctions | Anything from access to the legal order supporting your rights | Medici 1494, Russia 1917, China 1949, Iran 1979, Russia 2022 |
An eleventh, less sharply defined mechanism deserves mention: regulatory change that destroys a business model, as in China in 2021. It does not take ownership away. It can remove almost all its value.
The recurring pattern
The mechanisms change. Some patterns persist.
It often arrives with the crash. Falling assets and currency and capital flight encourage authorities to close the door. Your risks converge precisely when you most need them to separate.
It arrives at night or over a weekend. Roosevelt, Cyprus, Greece, India, Popular. Measures surprise investors while markets are shut. Acting afterwards may be impossible.
It arrives in legal form. Decrees, statutes and administrative decisions take immediate effect, even if courts can later overturn them, as in Canada. Being right does not guarantee timely access or full recovery.
It is justified by an emergency. Financial stability, national defence, fighting speculation, protecting savers. The arguments may be sincere and even reasonable. Their effect on your wealth does not change.
‘Temporary’ can mean years. Greece: four. Iceland: almost nine. Britain: forty. A restriction can outlive its justification.
The tool outlives its creator. The 1931 Reichsfluchtsteuer is the extreme case, not the only one. A capital control, database or exit tax designed by a moderate government remains available to its successor.
It affects what lies within the perimeter. Mexdollars followed Mexican law; Cypriot euros followed the law governing their banks. The asset matters, but so do its location and jurisdiction.
Concentrated holders suffer more. Sixteenth-century Genoese bankers who diversified survived. French savers whose Russian loans represented their only savings did not.
Why derivatives are not enough
A sophisticated investor might think: ‘I can hedge this with options, a short position in the local index or sovereign CDS.’
Options, short positions and CDS can hedge part of the loss, depending on their terms and where they are contracted and settled. They do not automatically protect every affected right.
A put can become less useful if the market closes, the counterparty fails or the proceeds are trapped. A CDS depends on its agreed credit event and the party required to pay. An external hedge can help, but its entire legal chain needs examining. The same applies to a dollar deposit subject to local compulsory conversion.
Getting the direction of prices right is not enough. Residence, governing law, custodian, counterparty and place of settlement all need scrutiny. A financial hedge needs a legal structure that lets you collect and use its proceeds.
A hedge that pays inside the same blockade may compensate a loss without restoring freedom to use the money.
The practical protection: the perimeter
An important defence is ensuring that everything that matters does not depend on one state. This complements liquidity, deposit guarantees, financial hedges and legal remedies. It does not replace them.
It is not about hiding. It means diversifying jurisdictions as seriously as assets, lawfully, with proper disclosure and documentation. Opacity adds risk rather than protection.
The perimeter has several layers.
Residence. Where you live and where you are tax-resident determine which state has the greatest power over your life, income and, often, worldwide assets. That is not the same as nationality or holding a residence permit elsewhere.
Nationality. A second nationality does not change tax residence by itself, but it broadens your right to live, work and relocate if the first country becomes unliveable. In many of these episodes, the physical ability to leave was as valuable as money.
Banking. Operational banking relationships in more than one jurisdiction, rather than unused accounts, reduce dependence on one banking system and one resolution authority.
Custody. Knowing which assets you own is not enough. You need to know where they are held, who the custodian and sub-custodian are, and which law governs them. The events of 2022 showed that custody chains cross borders and that any jurisdiction along the chain may block them.
Currency. Assets in different currencies provide protection against the destruction of one currency, provided those currencies are not trapped inside the banking system of the country in crisis.
Asset type. Property cannot be moved out of a country. Local businesses depend on the local legal order. Physical gold depends on where it is stored. Self-custodied cryptoassets remove some dependencies and introduce others.
Structures. A company or wealth-holding vehicle in another jurisdiction diversifies risk only if it has genuine substance: where it is managed, what it does and how that is evidenced. A poorly designed structure does not remove you from the perimeter. It complicates your position inside it.
Evidence. During a crisis, banks tighten checks. Documenting the origin of wealth makes action easier, although it does not guarantee acceptance of a transaction. That is why we emphasise building the source-of-wealth file before the bank asks.
Further reading · building the source-of-wealth file before the bank asks
Timing: earlier means more options
Preparing before a blockade usually offers more options than improvising during one. Authorisations, legal challenges and lawful exit routes may still remain afterwards, but with greater uncertainty and delay.
A transfer permitted today may be restricted tomorrow. Opening an account requires checks even in ordinary times; a crisis may complicate them. Obtaining residence or nationality takes months or years. A deposit freeze can be announced overnight.
Do not stake all your protection on being the fastest to react after the announcement.
Limit a position to withstand losses. Diversify the perimeter so you do not depend on a single door.
The strongest objection
It would be dishonest to present this argument without its limits.
In most years, nothing happens. A deposit freeze is unlikely in an institutionally strong country. Jurisdictional diversification costs time, money and compliance effort every year. Its benefit appears in infrequent scenarios. Like insurance, it may seem expensive until needed.
Institutions matter enormously. Independent courts, a state’s own currency, credibility and respect for property change the risk. Treating every country alike would be as careless as ignoring the risk altogether.
Bad diversification can increase risk. Moving wealth from a stable country to a small jurisdiction with weak regulation or dependence on a single sector may make matters worse. Cyprus in 2013 is the warning. Jurisdictional diversification requires comparing institutions, not finding the lowest tax rate.
Home bias has some logic. If your spending, home and obligations are in one country and currency, keeping some assets there makes sense. The objective is not to move everything out, but to avoid everything depending on the same thing.
Major episodes are globally correlated. In a world war or global financial crisis, many jurisdictions can be affected simultaneously. Diversification reduces risk. It does not eliminate it.
None of this justifies opacity. Diversification that is not disclosed, documented and aligned with actual tax residence creates legal exposures potentially more serious than the country risk it was meant to avoid.
The point is not to flee every state. Jurisdictional risk deserves the same serious analysis as market risk.
Practical questions
An honest starting point is to ask:
- What proportion of my wealth depends on one state through residence, banking, custody, currency or asset type?
- If my country imposed capital controls tomorrow, what could I still do, and what could I no longer do?
- Do I have operational banking relationships, rather than nominal accounts, in more than one jurisdiction?
- Do I know who actually holds my investments and which law governs them?
- Are my ‘external’ assets genuinely outside, or held by entities answerable to the same authority?
- Do I have a legal right to live elsewhere if I needed to leave?
- Have I documented the origin of my wealth so another bank could assess it promptly?
- Is my diversification aligned with my real tax residence and capable of full disclosure?
- Does my ‘refuge’ have better institutions than my home country, or merely lower taxes?
You do not need a perfect answer to every question. If most answers point to one country, it is worth knowing that before the country decides for you.
Diversifying the perimeter, with judgement
At Libertax, we work with founders, investors and families who do not want their lives and wealth to depend on a single jurisdiction. That means considering residence, structures, banking, custody and documentation as one coherent, efficient and defensible system.
Further reading · The last tax haven
Further reading · Proof of wealth and source of wealth
Further reading · The assumptions behind life planning
Tell us about your situationSources
- Philippe Jorion and William N. Goetzmann, “Global Stock Markets in the Twentieth Century”, Journal of Finance, 54(3), 1999.
- Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the Optimists: 101 Years of Global Investment Returns, Princeton University Press, 2002; UBS Global Investment Returns Yearbook (annual editions).
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- Additional primary document — SRB ↗
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- Foreign Claims Settlement Commission of the United States, Cuba Claims Program.
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- Additional primary document — Canada, Department of Finance ↗
- Additional primary document — Canada, Department of Finance ↗
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- France–Russia, 1996–1997 ↗
- France: private bondholders’ rights ↗
- Spain: Council of State, 10/2016 ↗
- Central Bank of Cyprus, 2013 ↗
- IMF: Greek debt restructuring ↗
