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Advantages of Sending a Currency Transfer with a Pegged Currency Account

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currency transfer
In many countries around the world a fixed exchange rate regime is force, which supports not simply the stability of the local overall economy but simplifies currency transfers too. In general, a fixed exchange rate (and a pegged exchange rate or even a currency peg) means that the local currency value is pegged on the value of another currency or even a currency basket. Most often this is a so-called "hard currency" like the U.S. dollar or even the euro. Important from a currency transfer standpoint is that no foreign currency rate will be applicable within the transfer and the recipient will get the same amount of money, minus fees and commissions, but converted in his/her local currency.

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Various types of currency pegs are known; however, it can be irrelevant to the average client of income transfer services. As pointed out above, most pegged currency regimes involve conditions hard currency as being a "base" currency to which the local currency is pegged. Moreover, there are some countries in which a foreign currency is adopted as official national currency. Experts know this as process dollarisation because this type of process initially involved the U.S. dollar as a currency replacing the area ones.

The most recognized cases of dollarisation are Panama, Ecuador and El Salvador where the U.S. dollar is an official currency however, you would be surprised the amount of countries have pegged their currency to the dollar. Those currencies add the Bahamian dollar, the Cayman Islands dollar, the Lebanese lira, the Uae Dirham, the Chinese Renimbi (yuan), listing only the most prominent ones. Several countries, not only in Europe, have pegged their currency to the euro. Among them are Bosnia and Herzegovina, Bulgaria, Estonia, Lithuania, Latvia and Morocco.

For the sender or a recipient sending money that'll be converted into a pegged currency signifies that both parties will avoid conversion, let's assume that the currency transfer is denominated from the same currency as the currency to which the property currency of the recipient is pegged to. In case you are sending a certain amount of euro from Germany into a bank account in Latvia, the recipient get the same amount transformed into his/her home currency, the Latvian lat, without losses due to forex rates. However, you can't avoid bank fees related to the transfer.

Alternatively, you should bear in mind that a pegged currency fluctuates along with the currency it is fixed to. For example, if you are sending British pounds to Estonia it is a good idea to wait as it were when the pound is extremely strong against the euro. This will allow the recipient in Estonia to help from the stronger pound and receive more euro, additional money in the local currency, respectively. This is a two-way process so wait for British pound to weaken against the euro if you are waiting to get a currency transfer, which is converted from euro into pounds. However, you will have to temporise until the pound restores its positions against the euro to benefit from your overall transfer.


Posted Aug 03, 2015 at 7:03am