Couple of examples:
How about your morning cup of coffee as an example?
There certainly is some coffee production in the US but not nearly enough to meet demand from all the caffeine junkies. So companies are going to buy coffee from Jamaica/Costa Rica/Colombia/Kenya or wherever. Not the US.
There is often a local wholesaler that pays the local farmer in local currency. Then the wholesaler sells to the multi-national Coffee-Corp.
The wholesaler does not want to wait 30 days for the international paymen to clear its bank. There is uncertainty over exchange rates and all sorts of headaches.
The wholesaler may not want a US based account. All of their business is based in their home country and they have no desire to get the IRS involved in their affairs. The buyer may not want to maintain accounts in the seller’s country due to lack of proper financial regulations, risk of some third world government deciding to nationalize foriegn accounts, unpredictable court systems for settling disputes, or whatever.
Instead, seller and buyer each establish accounts in a mutually agreeable third jurisdiction. They choose that jurisdiction for tax neutrality purposes. Payments are routed through those accounts and posted promptly. Adequate funds are maintained in those accounts for expected transactions. As needed funds are wired to/from those accounts.
Now I’ve no idea if Folger’s, Maxwell House, etc… actually have Cayman accounts. But the same general principles apply for some international trade.
Other example.
Not all foreign accounts are bank accounts. Could be a brokerage account (for stocks, mutual funds, bonds, etc…) for example. If you want to invest in such an item you establish the account where the financial instrument is traded.
Amazingly enough some financial instruments for American companies are listed for trade on overseas exchanges.
Insurance companies gather premiums and maintain reserves to cover potential losses. But sometimes they find they might be heavily exposed to potential loss from a particular type of natural disaster. Sometimes they buy a re-insurance policy in the international market and sometimes they issue CAT bonds to spread the risk (essentially allowing institutional or wealthy investors to assume the risk instead of an insurance company)
So if you want to buy insurance CAT bonds from Successor X Ltd which covers insurance risk of hurricanes in the US and windstorms in Europe you wil need to do that on the Cayman Stock Exchange. Which means you’ll be moving money to Cayman.
There is an expectation in the Cayman market that insurers may choose to spread the risk of possible health insurance claims by selling CAT bonds as well. The alternative is that insurers will need to maintain larger reserves if they cannot spread their risk. This means higher premiums for customers - Americans.
