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Money Exchange

30.03.2021

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Currency exchange

Currency buying and selling operations

Currency exchange is a banking operation that can be legally engaged not only by commercial banks but also by other institutions licensed by the Central Bank.

Currency exchange (conversion, currency conversion) is an operation for cash or non-cash exchange of national banknotes and coins in accordance with the exchange rate, carried out in specialized offices of state banks and non-state financial organizations, in accordance with current legislation.

Currency (from Italian valuta) – national, foreign, and international money, both in cash (in the form of banknotes, treasury notes, coins) and non-cash (in bank accounts and bank deposits), which is a legal means of payment.

The second meaning of the term is a monetary unit, that is, a unit of measurement of money used to express prices of goods and services, to establish denominations of banknotes, to carry out monetary payments, to determine the value (rate) of foreign currencies.

Currency and money.

The word “currency” came into wide use only in the second half of the 20th century and is usually applied only to legal means of payment in force, existing in the form of cash or non-cash money. So, the ancient Roman denarius is not called a currency, using the concepts of “coin”, “monetary unit”. The term “currency” (as the basic monetary unit of the state) is not identical with the concept of “money”. Certain functions of money under certain circumstances can be performed by certain goods (commodity money). For example, in Germany in the first years after the end of World War II, in the Western zone of occupation, American cigarettes played the role of money on the black market.

The national currency of the Russian Federation is the Russian ruble, consisting of 100 kopecks (the latter act as a changeable currency against the national currency). Examples of international currencies are ECU, Euro, Special Drawing Rights.

A number of authors believe that currency in a broad sense is any commodity capable of performing the function of money when exchanging on the market within the country or on the international market.

This is a type of transaction for the sale or purchase of monetary units of one country for the monetary funds of another country at a certain price, which involves the receipt of a profit by the exchange point due to the difference in exchange rates.

The exchange rate of each convertible foreign currency against the domestic currency shall be set by the Central Bank. The purchase and sale price at the Central Bank rate is considered official for a specific period of time. It is taken as a basis for settlements on international transactions, foreign economic activity, and trading on the stock market. All other participants who are engaged in retail currency exchange for individuals set their own exchange rate taking into account the margin, which, on the one hand, would allow the exchange office to receive a profit, and on the other hand, would be a competitive price in relation to the rates that were set. other market participants.

The history of the development of money exchange transactions

The first transactions for the exchange of money from different states began to be dealt with privately by jewelers in the Middle Ages. The specificity of the money changer’s work was not only to exchange the offered coins for the required ones but also to check them for authenticity. Money was minted from precious and semiprecious metals, which is why the profession of a money changer required the experience of working as a jeweler.

Later, money changers became the founders of the first non-cash payments between merchants who were engaged in their activities not only within the state. Having deposited their money with the money changer, clients could count on the fact that they could pay off their obligations with the help of a written or oral agreement, and all financial issues would be settled by the money changer. So these specialists expanded their responsibilities, performing the functions of a bank and an accountant. This model of international trade relations during the Middle Ages became the prototype of the modern scheme according to which banking institutions carry out settlement transactions for their clients.

Currency exchange conditions

Residents and non-residents – individuals and legal entities can freely and without restrictions sell and buy currency if it is freely convertible. Currency convertibility is the external and internal convertibility of money, which determines the degree of its liquidity in the international financial markets.

Depending on the degree of convertibility, three classes of currencies can be distinguished.

  1. Freely convertible currency (FCC). Such currency can be exchanged for other foreign currencies without restrictions, with its help it is possible to carry out the necessary settlement operations. In fact, freely convertible is the type of currency in relation to which there are no legislative restrictions in the implementation of any transactions with it.

American dollar (USD), British pound sterling (GBF), Swiss franc (CHF), etc. are recognized as freely convertible currencies.

  1. Partially convertible currency (PCI). If currency restrictions are applied to residents, as well as for certain types of exchange transactions. For example, the Russian ruble is partially convertible.
  2. Non-convertible (closed) currency (NKV). It is a national currency that functions only within a single country and is not exchanged for foreign currencies.

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