Loan Repayment vs. Currency Swap?

[OnPoint]

Just musing with a friend the other day: Let’s say you have a 30 year mortgage. At some point, say 10 years in, the US Dollar is inflated to worthlessness and replaced by the “Amero” or some such.

How would this affect your loan repayment? All your loan papers refer to USD right? The contract notwithstanding, would the govt step in and enforce a Dollar to Amero conversion rate for all existing contracts? Cause my wild guess is, if they do, it’ll be mighty unfavorable.

Anybody know how this has worked in other countries that did this?

I’m thinkin’ I want a US Dollar clause 🙂

[Coronita]

fixed rate mortgage? it should be obvious.

[AK]

Not exactly the same situation but … before 1934 many long-term bonds, including government bonds, had a “gold clause” stipulating repayment in gold. After the end of the gold standard and the effective devaluation of the dollar in 1934, debtors were more than happy to declare the gold clauses void and pay off the bonds in devalued dollars. Creditors sued for the dollar equivalent of the gold they were due. The courts sided against the creditors because, well, they were asking for an awful lot of money.

I say the moral of the story is that you can tell the bond market to get ****ed at least once a century.

[Author]

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