Banking4 min read
Holding more than one currency, without inventing a treasury
You are billing in dollars, paying salaries in another currency and living in a third. That is a treasury problem, and the default answer — convert everything on arrival — is quietly one of the most expensive habits a small company has.
Most founders do not decide their currency policy. It gets decided for them by whichever account the money lands in and whatever that provider does by default. For a business with revenue in one currency and costs in two others, that default is a recurring cost that never appears as a line item.
Where the cost actually is
There are three separate charges in a cross-currency payment, and providers compete loudly on the smallest of them.
| Charge | What it is | Typical visibility |
|---|---|---|
| The spread | The margin between the mid-market rate and the rate you are given. This is where nearly all the money is | Usually invisible — quoted as a rate, not a fee |
| The stated fee | A percentage or flat charge, disclosed up front | Fully visible, and often the smaller number |
| Correspondent and intermediary fees | Deducted in transit on a wire, by banks you never chose | Invisible until the amount arrives short |
Convert on arrival, or hold?
The instinct is to convert everything into your home currency as it arrives, because that is the number you think in. It is the wrong default whenever you have real costs in the currency you just sold.
A natural hedge is free. If you bill $40,000 a month and pay $15,000 of contractors and suppliers in dollars, converting the whole $40,000 and then buying back $15,000 costs you the spread twice on that portion, every month, forever. Holding the dollars you are going to spend anyway costs nothing and eliminates both conversions.
- Map your costs by currency, not by supplier. Twelve months of outgoings, sorted into the currency each one is actually settled in.
- Hold the amount you will spend in each currency, on a rolling basis of a quarter or so.
- Convert only the surplus — the genuine profit that will be distributed or banked at home.
- Pick a conversion cadence and keep it. Monthly, on a fixed date, regardless of the rate. This is the part people get wrong next.
You are not a currency trader
The legitimate version of managing rate risk is different and much narrower: if you have a known, dated, material obligation in another currency — an annual supplier contract, a tax payment abroad — you can buy the currency now for delivery then. That is a forward, most business FX providers offer them, and it removes uncertainty rather than creating a position. Everything beyond that is trading.
Where to actually hold it
| Option | Good for | Watch |
|---|---|---|
| Multi-currency account at a payment institution | Local receiving details in several currencies, low spreads, fast setup | Balances are safeguarded, not insured, and appetite for your category can change without notice |
| Bank accounts in each currency's home country | Deposit protection, real banking relationships, credibility with local counterparties | Hard to open as a non-resident, and slow — see where you can still open one |
| One domestic bank offering foreign-currency sub-accounts | Simplicity and a single relationship | Usually the worst spreads of the three |
The practical arrangement for most founder-scale businesses is a combination: a payment institution for receiving and day-to-day conversion, and a genuine bank holding the reserve. That is also the redundancy answer — two institutions, either of which can run payroll — so it solves two problems with one structure.
The accounting and tax consequences
Holding balances rather than converting creates entries most small-company books get wrong.
- Your functional currency is the one the business primarily operates in, and everything is measured in it. Transactions are recorded at the rate on the day, which means your books need a consistent rate source rather than whatever the bank showed.
- Unrealised gains and losses arise on foreign-currency balances at each period end, when you restate them. They are real entries even though no conversion happened.
- Realised gains and losses arise when you convert. In many systems these are ordinary income or deduction — meaning a currency gain can be taxable even though it is only the same money in a different denomination.
- Personal transactions differ. Where a founder personally holds foreign currency, several countries treat a gain on conversion as a separate taxable event with its own rules, including small de minimis exemptions. Do not assume the company answer applies to you.
A policy you can write in ten minutes
- Hold the currencies you spend in, sized to about a quarter of forecast spend.
- Convert the surplus on a fixed monthly date, whatever the rate.
- Hedge only known, dated, material obligations, with a forward, and never more than the obligation.
- Compare providers annually on the landed amount for one realistic transfer.
- Reconcile every currency account monthly against a single rate source.
- Keep enough in a second institution to run one payroll cycle.
Written down, that is a treasury policy. It fits on a page, and it will save a business with international costs more than most of the tax planning it is likely to consider.
Accounts, currencies and books in one place
Balances, conversions and reconciliations tracked together, so the FX cost is visible rather than absorbed.
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