Xenocurrency

Xenocurrency

The necessity to employ a greater variety of currencies increases as more firms expand internationally. The most extensively used and traded xenocurrency worldwide is the US Dollar. 

As the word xeno in modern English might have negative connotations, the term “xenocurrency” is not often used nowadays. For instance, “xenophobia” refers to an unjustified fear or hate of outsiders. Therefore, the phrase “foreign currency” has taken over as the standard way to refer to non-domestic currencies. 

What is xenocurrency? 

A currency that is traded outside of its country of origin is called a xenocurrency. Its name is derived from the Greek word “xeno,” which means “foreign.” As supply networks and financial markets become more globalised, these kinds of currency exchanges are becoming more frequent. 

However, xenocurrencies may also occasionally be referred to as Eurocurrencies. The primary Eurocurrencies in this scenario are: 

• US dollar (US$) 
• British pound (GBP) 
• Euro (EUR) and the Japanese yen (JPY) 

Understanding xenocurrency 

Xenocurrency is also considered when currencies are traded or deposited into a bank account in another nation. The term originated in the 1970s to refer to investments, loans, and deposits made in currencies different from where the individual resided.  

How do xenocurrencies work 

Investments in xenocurrencies can be dangerous since several factors, such as exchange rate swings and conversion hazards, compound them. Deposits in an expanding domestic currency market present risks since the foreign investment may provide lesser returns when converted back into the domestic currency. For investments made in native currencies that are depreciating, the converse is true. These dangers are referred to as foreign exchange consequences. 

Additionally, political dangers may have a role. The government may restrict the quantity of xenocurrency that travellers are allowed to export from a country during a crisis. For instance, the Iranian rial fell to a record low versus the dollar in May 2018 when the United States withdrew from the Iran nuclear deal. 

Example of a xenocurrency 

 The US$ is frequently used in Mexico as a xenocurrency, particularly for significant real estate and other corporate transactions. Another illustration of utilising xenocurrency is if you’ve ever used US dollars to purchase products and services in Latin America.  

Challenges of using xenocurrency 

Working with xenocurrency involves risk and might provide several unanticipated difficulties. These are the top three issues: 

• Fluctuation of transaction fees 

Several banks, cross-border money transfer companies, and international payment providers impose hefty fees to keep and transfer foreign currency. This might become a major price if your company deals with a lot of xenocurrency. Ramp doesn’t charge fees for international transactions, allowing you to streamline your usage of xenocurrencies as you expand. 

• Pricing liquid assets 

Importing services or exporting goods to international markets both carry this risk. If liquid investments are valued in several currencies, companies may be exposed to risks related to asset price fluctuations. 

• Fluctuation in exchange rates 

Due to their frequent fluctuations, foreign currencies can be challenging to manage and balance on your books. Demand might spike when many users visit their xenocurrency portfolios at once or execute a trade. Your currency balances might become extremely volatile as a result. 

Investments in xenocurrencies may carry a significant level of risk due to potential volatility in international exchange rates. Your foreign investment would provide lesser profits when converted if the value of your native currency increases. 

Of course, converting your overseas investment would yield a higher return if the value of your home currency declines. Foreign currency impacts are gains or losses brought on by currency changes. 

Frequently Asked Questions