There has been much discussion as to the overall benefits of sending hard currency as opposed to remitting local currency for payments in developing countries. INTL FCStone Ltd has had extensive worldwide experience in both methods of funding with our large and diversified client base.
Based on our experience, the following factors highlight the importance of sending local currency:
It is a mistake to assume that sending hard currency is just as efficient as sending local currency. By sending hard currency directly to the beneficiary bank for conversion locally, an organization potentially opens itself up to uncontrolled loss and relies on the local bank as its sole rate source. In many cases, the bank then converts the funds at the rate of the day, which is usually much less favorable than what can be attained by soliciting competitive bids. In fact, it is not uncommon for the difference to be as much as 5 percent – and, in some cases, even more. In addition, there are added fees associated with sending hard currency to be converted locally. As a result, it is more advantageous to fund in local currency, thereby ensuring access to competitive rates and maximum levels of funding for field projects.
Controls The financial markets and banking systems in many developing countries are inherently volatile and can be negatively impacted by political instability, corruption and perpetual underdevelopment. Therefore, maintaining large sums of hard currency in-country leads to many potential complications including misappropriation of funds, substantial country and credit risk, and an overall lack of accounting transparency. By transacting in the international market for local currency, the funding and accounting process is made more secure and accurate while reducing the potential for corruption and fraud.
Global compliance standards have been raised significantly in recent years. With the introduction of new laws and regulations in many countries worldwide, organizations must be aware of and adherent to current regulations regarding international currency transfers. By actively monitoring the currency exchange process from its head office, an organization can ensure not only that it is compliant but that all financial dealings are undertaken with approved counterparties.
INTL is a public company, based in the United States, and listed on the NASDAQ stock exchange (ticker symbol "INTL"). It is regulated by the SEC. IFL is registered in England and Wales Company Number 5616586. Authorized and regulated by the Financial Conduct Authority (FCA) [FRN: 446717] For Global Payments INTL FCStone Inc. acts as Agent for IFL in New York. INTL Asia Pte Ltd. Acts as Agent for IFL in Singapore.
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