Foreign currency ( english foreign currency ) is a currency that is not located in the State which they emitting Central Bank is in circulation, but outside of this territory . The opposite is domestic or home currency.
Every state has a currency monopoly created by law , which means that it introduces a legal tender in its territory . If his currency circulates outside his national territory , it is called foreign currency there and is not a legal tender there, but can be used for the purpose of storing value . If a foreign currency is accepted as a means of payment, this is done voluntarily. Because according to Abs. 1 Satz 2 BBankG “banknotes denominated in euro are the only unrestricted legal tender”. There are similar regulations worldwide. Art. 2 of the Swiss Federal Act on Currency and Means of Payment regulates that the Swiss franc is legal tender; in Austria, this applies in turn to the euro according to Section 61 (1) of the National Bank Act . In the US state of Utah , gold and silver have also been legal tender in addition to the US dollar since March 2011 . However, the function of gold and silver as legal tender does not mean that these precious metals are viewed as foreign currency elsewhere.
Appearances and typical holders of foreign currencies
Forms of foreign currencies are currencies or sorts . Foreign currencies are bank balances denominated in a foreign currency , bills of exchange , checks (formerly also travelers checks ) or letters of credit . In a broader sense, there are also securities denominated in foreign currencies . Varieties are the foreign legal tender that is not subject to any acceptance requirement in another country. The holders of foreign currencies usually have a foreign connection or speculative motives. Credit institutions are the most typical holders of foreign currencies. You trade in foreign exchange and currency trading, grant foreign currency loans or accept investments in foreign currencies (foreign balances ). Exporters and importers receive payments or owe payments in foreign currency to their foreign contract partners. Tourists acquire foreign currency in order to pay for this currency in their home country.
In all major industrialized countries, it is common practice for the exporter to invoice in their own domestic currency . Accordingly, German importers have to accept if their liabilities outside the euro area are denominated in foreign currency. This is reflected in para. 1 BGB bill, according to which a claim denominated in foreign currency monetary debt can be paid in euro, provided that the payment obligation is not explicitly meet in foreign currency. These are so-called bogus currency debts or simple foreign currency debts . In contrast, the effective foreign currency debt can only be paid in this foreign currency if this is expressly provided for in the contract.
Holding foreign currencies requires complete freedom of movement of capital both in the home country of the foreign currency and in the country concerned. Restrictions on the free movement of capital can lead to the prohibition of holding foreign currencies ( foreign exchange restriction ). Foreign currencies do not exist if at least one state completely or partially prohibits the circulation of its own currency abroad or the circulation of foreign currencies in Germany.
Foreign currencies are traded on the foreign exchange market, which includes the foreign exchange exchanges and the OTC markets. The most important foreign currencies worldwide are US dollars , euros (outside the euro zone ) and yen .
Payments in foreign currencies are made throughout Europe as part of international transfers . For reasons of the reporting regulations in foreign trade for the purpose of collecting the balance of payments and foreign trade statistics , the resident liable to pay (for payments to foreigners domiciled abroad) and the domestic payee (for payments from foreigners domiciled abroad) have a reporting threshold according to (1) AWV to report outgoing or incoming payments of more than 12,500 euros or the equivalent in foreign currency (“other currency”; Section 67 (2) AWV) using the “ Payment order in foreign trade ” (Z1 / Z4) form (Section 67 (4) AWV). Also SEPA -Payments are affected by the limit of 12,500 euros. Export earnings, import payments and certain payments for short-term loans are exempt from the reporting requirement . In the case of cross-border payments, credit institutions automatically point out that these reporting obligations must be observed by the debtor or payee.
Foreign currency accounts
In connection with the holding of foreign currencies there are two risks, namely the exchange rate risk and the parity change risk, both of which are summarized as value risk. The stock of foreign currencies is therefore subject to the chance of profit or risk of loss that the exchange rate of the foreign currency against the home currency rises or falls (exchange rate risk) or the foreign currency appreciates or depreciates against the home currency (parity change risk ). For the creditor or exporter, the price increase or appreciation is an opportunity for profit, for the debtor or importer a risk of loss. Those involved can protect themselves against this risk of loss by hedging , closing out or covering. If the foreign currency is held for a longer period of time and the foreign currency holder wants to take advantage of opportunities to win, there is speculation .
The holder of foreign currency securities ( foreign currency bonds , stocks , investment certificates ) is exposed to two risks. In addition to the price risk typical of securities and (in the case of interest- bearing securities) interest rate risk , it also has a value risk, which are independent of each other. Exchange rate, interest rate and currency risks can be in the same direction, but also in opposite directions.
Since the annual financial statements must be prepared in euros ( German Commercial Code), assets and debts recorded in foreign currencies must be converted into euros on the balance sheet date . Foreign currency assets and foreign currency liabilities are to be converted at the mean spot exchange rate on the reporting date in accordance with HGB . If a balance sheet is drawn up in a foreign currency, German Commercial Code information on convert it into euros. Currency gains are an increase in assets for the holder of foreign currency assets or debtors, currency losses result accordingly from a decrease in assets.
From cash flows denominated in foreign currencies result in companies a transaction, translation and economic risk.
- The transaction risk ( English transaction exposure ) consists of the risk that, due to changes in exchange rates, sales will decrease or costs will increase,
- The translation risk ( English translation exposure ) consists of the risk that, due to changes in exchange rates, the assets will decrease in value or the liabilities will increase in value,
- The economic risk ( English economic exposure ) is the danger that medium- and long-term exchange rate changes worsen sales opportunities in foreign markets or that costs increase there.
According to International Accounting Standards (IAS), a foreign currency is any currency other than the functional currency of the reporting company. The “functional currency” corresponds to the currency of the primary economic environment in which the company operates (IAS 21.8). As soon as a company enters into a transaction in a foreign currency, it is exposed to the currency risk. Foreign currency transactions include the purchase or sale of goods or services in foreign currency, foreign currency loans and investments (foreign currency bonds) and the acquisition or sale of assets or liabilities in foreign currency (IAS 21.20). They are to be converted at the closing rate (IAS 21.23).
Banks are allowed to hold open foreign currency positions. These are all asset (liability) currency positions that are not offset by an equally high liability (asset) position, or future payments ( payments ) in foreign currency that are not offset by payments (payments) in the same amount at the same time. Open asset positions and payment surpluses in foreign currency are called "long" or positive positions , open liabilities or payment surpluses in foreign currency are called "short" or negative positions . There were high mismatches in foreign currency during the Asian crisis in Thailand and South Korea . It was preceded by a deterioration in the net foreign currency position of Thai and South Korean banks between 1993 and 1996; the risk of foreign currency loans has been underestimated in South Korea.
Takeover of a foreign currency
The permanent use of a currency outside its actual currency area results mainly from the failure of the respective national currency to fulfill its monetary functions . For this reason, some countries are actually abandoning their own currency and replacing it with a stable foreign currency (“dollarization”, “euroization”). In addition, it is also common practice in Europe, for example, to accept US dollars in American restaurants. In some countries, mainly with their own currency that is not so stable (“soft currency”), payments in foreign currency are even desirable. The acceptance of foreign currencies is not uncommon, especially in tourist regions, but this is often rounded off generously and / or fees are added to the price. As a rule, the payer only receives change in local currency.
Foreign currencies can also be used domestically as a monetary policy strategy. If a country gives up its previous currency without a national substitute and instead introduces a foreign currency as legal tender , this process is carried out depending on the currency introduced, e.g. B. referred to as dollarization or euroization . The legal waiver of a national currency implies that the country in question can no longer implement an independent monetary policy and no longer generate seigniorage income.
- Country examples
- Euro : Andorra , Monaco (through currency agreement with France ), San Marino and Vatican State (each through currency agreement with Italy ), Montenegro , and Kosovo
- US dollars (see also dollarization ): British Virgin Islands , Ecuador , El Salvador , East Timor , Panama , Cambodia , Zimbabwe
- Swiss Francs : Principality of Liechtenstein (through currency agreement with Switzerland )
Since 2018, the statutory deposit protection has also been in effect for foreign currency accounts with a balance of no more than 100,000 euros. In Deposit Insurance Act stipulates that foreign currency accounts are protected up to the statutory maximum of € 100,000 under the German statutory deposit guarantee.
- inflation: Utah declares gold to be the official currency . Spiegel Online , March 21, 2011
- Klaus Bertram: HGB commentary on Haufe . 1st edition 2009, § 244 Rn. 5
- Heimo Losbichler, Christian Engelbrechtsmüller: CFO key know-how under IFRS . 2010, p. 427 f.
- Jürgen Stauber: Financial instruments in the IFRS financial statements of non-banks . 2012, p. 257 ff.
- Christoph Pasternak: Banking crises in the Asian region . 2001, p. 26