Updated: Aug 17
The U.S. financial system offers three distinctive strengths that are key to understanding the benefits of American residency for expats and their advisors. As the world’s largest, most powerful economy, America’s dominant reserve currency, low cost financial markets and diversity of investment products position it as the market of choice for the wealthy.
As the world’s reserve currency, the U.S. dollar has dominated the global economy since the end of World War II. Because it is the most widely used currency for international trade, the dollar is in high demand by corporations, foreign countries, individuals and financial markets. This confers many benefits on the United States and the corporations and individuals that reside in America.
The size of the U.S. economy and the dollar’s position as the world’s reserve currency have created financial markets of unparalleled size, liquidity and depth. Both the stock and bond markets are two of the world’s largest, which attracts global business and institutional and individual investors.
In turn, this creates diverse and innovative financial markets. America is home to a wide variety of financial products and services that facilitate wealth building. Not only do the markets support innovation, but the wide variety of financial services companies, wealth managers, estate planning attorneys and tax savvy accountants translates into a vibrant environment for wealth creation.
Strength #1: Dominant Currency
For more than 75 years, the U.S. has been the most dominant currency in the world. In currency-speak, that means the dollar is the world’s reserve currency. This position in the world’s economy confers many advantages – and some disadvantages – on businesses and individuals in the United States.
As the world’s reserve currency, the dollar is widely held by the central banks and treasuries of countries all over the world. Corporations that operate across international borders also hold dollars. Because international trade is widely conducted in dollars, countries and businesses must use dollars to pay for imports, service their debt and maintain economic stability.
While there are seven other reserve currencies recognized by the International Monetary Fund (IMF), the organization responsible for oversight of the global monetary system, the dollar is the most commonly held with 61.26 percent of global foreign currency reserves.
The dollar’s status as the world’s reserve currency means that America can issue debt at lower costs given the large global market for Treasury securities. This advantage provides benefits for investors holding dollar-denominated assets.
Dollar dominance can create disadvantages as well. A key issue for certain businesses is that US exports may be relatively expensive. . Meanwhile, imports are relatively cheap - a boon for businesses that rely on imported goods, but a concern for businesses that must compete with foreign companies. And, from a public policy point of view, expensive exports and cheap imports can negatively affect the balance of trade.
Strength #2: Robust Financial Markets
The U.S. government and corporate bond markets are by far the largest in the world. The International Capital Markets Association reports that American government bond markets are the largest at $22.4 trillion dollars, a 25.4 percent share of the global government bond market, while the American corporate bond market is the largest at 10.9 trillion, a 26.7 percent share of the global corporate bond market.
While the bond market is larger than the stock market, the U.S stock market is significantly larger than any other country’s stock market. With a market capitalization of $36.3 trillion, the American stock market is approximately five times as large as its nearest competitor. The United States also accounts for nearly 50 percent of all global equity value.
Strength #3: Low-Cost Financial Products and Services
The sheer size and dominance of these markets creates opportunities for U.S. institutional and individual investors that exist nowhere else. The dependent relationship between the size and robustness of the markets and the dominance of the dollar translates into a highly competitive, broad and innovative market for financial products and services.
Because the market is so innovative and competitive, there is significant fee pressure, resulting in lower costs than virtually any other market. In fact, Morningstar awarded the United States a top grade for fees and expenses as part of its 2019 Global Investor Experience Study. In addition to low fees, American markets are highly accessible to investors, who can invest directly through numerous low-cost intermediaries or through a large population of financial advisors and wealth managers.
Numerous investment vehicles are available to those with modest savings and wealth. Exclusive products such as hedge funds, private equity and private placement life insurance are available to the wealthiest individuals.
Creating a Favorable Environment for Wealth Creation
As a venue for accumulating and preserving wealth, America is unparalleled. The dominance of the dollar, robust, liquid financial markets and low cost investment products create opportunities for building wealth that don’t exist anywhere else.
The 5 Largest Economies in the world and their growth in 2020, Nasdaq.com, Jan. 22, 2020, https://www.nasdaq.com/articles/the-5-largest-economies-in-the-world-and-their-growth-in-2020-2020-01-22
The dollar: the world’s currency,” The Council on Foreign Relations, Sept. 29, 2020, https://www.cfr.org/backgrounder/dollar-worlds-currency
Currency composition of official foreign exchange reserves, The International Monetary Fund, Sept. 30, 2020, https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4
Bond market size, International Capital Market Association, August 2020, https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-market-size/
Total Market Value of U.S. Stock Market, Siblis Research, Sept. 30, 2020, https://siblisresearch.com/data/us-stock-market-value/
Visualizing the size of the U.S. stock market when compared to the rest of the world, howmuch.net, Sept. 18, 2019, https://howmuch.net/articles/all-stocks-capitalization-around-the-world
Global Investor Experience Study: Fees and Expenses, Morningstar, Sept. 17, 2019, https://www.morningstar.com/content/dam/marketing/shared/pdfs/Research/GIE_2019_v4.5.pdf?utm_source=eloqua&utm_medium=email&utm_campaign=&utm_content=18780