The Language of Currency Management Abroad: Conversion Fees, Transparency, and Timing | Expat Empire
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There’s a child-like wonder in seeing a new currency for the first time. Part of the allure of a foreign land is seeing how the markets operate. Looking at the bills and coins themselves can be an experience that gives you great cultural insight into the country, from the people and symbols to the colors and relative sizes of the bills and coins. Some bills have generals standing proud, others have mathematicians or artists. There can even be a romantic period in your first days on the ground when money seems to be endless as you hop around the markets, restaurants, historical sights, taxis, and hotels. Then, you check your account balance.
Converting Money Is A Gamble
There are currently 180 currencies in world circulation as recognized by the United Nations. As you live abroad or travel, one of the hardest parts about managing currencies is mentally converting foreign money back to your home currency. The denomination should always be at the back of your mind during your daily spending habits in the country you move to. I’ve been lucky to travel in countries both relatively cheap and downright expensive, some with strong and stable currencies and some wracked with inflation.
Two of the strongest and most reliable currencies in the world are the US Dollar and the Euro. Many countries peg their currencies to one of these two powerhouses. For example, Bosnia and Herzegovina uses the Mark, which is pegged to the Euro at exactly 1.95583 Mark to 1 Euro. This means the Bosnian currency follows along with the Euro at all times. Meanwhile, the Colombian Peso is trading at about 3,500 Pesos to 1 US Dollar at the time of writing this article. Colombia’s currency, as a result, fluctuates against the US Dollar, which has a much lower inflation rate.
The Language of Currency Management
Living daily life in another currency is like speaking another language. You need to be comfortable thinking in the newer currency the way you do with the money back in your home country. Checking prices around the local Carrefour supermarket in Spain should be similar to checking prices around the Safeway supermarket back where you grew up.
You don’t need to be fluent in this new language. My current home is Turkey and, recently, the Turkish Lira exchanges at around 7 Lira to 1 US Dollar. This would require some mental division every time I go shopping, but instead, I just started to remember around what number certain things cost in Lira. If I’m not sure about the price, I’ll convert it back into US Dollars using my phone calculator. Generally, the real worry is being taken advantage of while you shop around touristy areas. However, for most expats, this is a non-issue as we quickly learn to blend into new environments.
As you settle into your expat life, the real concern of currency management revolves around how you maintain your investments. If you’re not planning on returning to your home country, planning your retirement should involve the currency of your new country. A long-term decrease in the value of your home country’s currency can negatively affect the lifestyle you want to experience abroad. Should you invest in assets denominated in different currencies to hedge your currency risks? There are many decisions you will have to make to ensure your investments are safe over the long-run
You can make an impact on how much money you’re spending by understanding how various international banks handle and profit from currency conversions. We have written before about the best ways at keeping your money secure while living abroad as well as the benefits and drawbacks of traditional and online banking in Germany, specifically. The best bank for your needs while living abroad can make all the difference.
Exchange Rate Transparency Is Everything
It’s important to remember that regardless of your experience, a bank is always a business. One of the easiest ways for a bank to earn money is through fees attached to currency conversions. Simply put, fees are always involved in currency conversions. The best way to manage your currencies while living abroad is to find banks that don’t try to hide these fees. In dealing with your banks, transparency is everything.
A great option for currency management is Wise, formerly TransferWise, a London-based online money transfer service. Wise shows all of their fees upfront with full transparency as well as comparisons with other banks and money transfer services. The service is also quick and they lock in a fixed currency rate for 2 hours. In addition to simple money transfers, Wise also offers a multi-currency debit account that can handle 50+ currencies from around the world. Each currency exchange has a variable rate which they elucidate on this page. Meanwhile, with other less-transparent banks, you might have to slog through pages of bank documents in legalese to find the rate they’ll charge for standard currency conversions in a money transfer transaction.
Adapting to the Flow: Timing and Strategy
The value of your money when converting to a different currency is dependent on the timing of your transfer. Current exchange rates can easily be tracked online or in countless mobile apps. The world markets don’t tend to fluctuate much and rises and falls are pretty easy to notice as long as you’re staying on top of your finances. The best way of all to save your money using currency management is to hold your money in a stable currency that can be converted worldwide like the Dollar or the Euro. This practice can bring you the biggest purchasing power as an expat and always ensure that you can transfer or withdraw money whenever it serves you.
Originally published at https://expatempire.com on March 17, 2021.
