That's only half of it.
The other half is where you're spending the money.
With your scenario you've introduced currency risk to add to the inflation risk.
If you're invested in the US market but spending elsewhere, and elsewhere has double the inflation and the currency rises versus the dollar, you're in for some pain.
It's not just as simple as where it's invested.
Aha! Very good point. I did not consider that.
But there are two mitigating factors:
(1) The ratio of your spending needs to your overall wealth determines how much you actually need to keep in local currency and how much can be safely invested elsewhere. The richer you are, the easier it is to pull off living in a volatile economy safely this way. And the more MUSTACHIAN you are (low spending), the easier it is.
(2) Currency fluctuates, but if something happens that affects the currency in a major way (realizing the inherent currency risk in keeping ALL your money invested elsewhere)... then perhaps you are going to be wanting to leave that country anyway? It probably signifies political or civil turmoil of one kind or another...
When talking SWR and FIRE, it's so easy for all of us (*especially* the geeks) to try to plan for EVERY contingency and set up a "self-sustaining", infinite time period stable equilibrium. But there is a lot of power in the fact that we adapt -- You know, like if you retire and then it happens to be a crash right after, means you retired at the worst time for how the scenarios will play out, you can always go back to work part-time, etc etc
So if you WANT to live in a third world country that isn't doing so hot economically (though I wouldn't recommend it), you could keep all your money in vanguard, only transfer monthly or quarterly what you need, and if the economy goes to total shit then just leave while the writing is on the wall and before people are lined up and shot. :)
Of course that doesn't work for Zimbabwe, but come on how bad of a worst case scenario are we trying to dream up here :P