Double Currency Conversion
Double currency conversion occurs when funds are converted into an intermediate currency and then converted again before reaching the beneficiary. The additional conversion can create another FX spread, extra fees and uncertainty about the delivered amount.
Also called: double conversion
Double currency conversion happens when a payment passes through two foreign-exchange steps instead of one. A common case in China payments is a buyer funding in euros or another currency, the bank converting into US dollars to send the wire, and the supplier's bank converting the dollars into renminbi on arrival. Another arises when a sender pays USD from a multi-currency account and a correspondent converts it again because the instruction or beneficiary account was not set up for that currency.
Each conversion carries its own FX spread and sometimes its own fee, so the total cost can be noticeably higher than a single, direct conversion. The extra cost is often invisible to the payer, because the second conversion happens at the receiving end and appears only as a shortfall against the invoice. It also makes the amount the supplier receives harder to predict, which complicates reconciliation and can lead to short-paid payments and disputes.
Avoiding it starts with knowing which currency the beneficiary account can receive and which currency the invoice is priced in. Where the supplier invoices in USD and holds a USD account, paying USD directly avoids a second step. Where the supplier invoices in RMB, a provider that can deliver renminbi to the beneficiary may avoid converting through dollars first. A business with receipts and payments in the same currency may also use a natural hedge instead of converting twice.
In practice
Confirm the currency of the beneficiary account before sending. Most double conversions are caused by an instruction that does not match what the receiving account can accept.
Example
Hypothetically, a European buyer pays a CNY-priced invoice by converting EUR 100,000 into USD at a 0.5% margin, then the supplier's bank converts the dollars into RMB at a further 0.4% margin. The two steps cost roughly 0.9% of the value, about EUR 900, compared with perhaps 0.5% for a single direct EUR to CNY conversion.
Commonly confused with
| Term | How it differs |
|---|---|
| FX spread | An FX spread is the margin on one conversion. Double currency conversion means paying a spread twice, on two consecutive conversions. |
See also
- FX SpreadStrictly, the FX spread is the bid/ask spread: the gap between the price at which a currency can be bought and the price at which it can be sold at the same moment. It is a property of the market and of liquidity in that pair.
- Natural HedgeA natural hedge reduces currency exposure by matching receipts and payments in the same currency. For example, a company receiving RMB may use those funds for RMB supplier obligations instead of converting twice.
- Short-Paid PaymentA short-paid payment occurs when the beneficiary receives less than the amount expected under the invoice or instruction. The difference may result from bank charges, intermediary deductions, unexpected conversion or an incorrect charge code.
- OUR, SHA and BEN Charge CodesOUR, SHA and BEN are instructions describing how bank charges should be allocated between sender and beneficiary. OUR generally places charges on the sender, SHA shares them and BEN places them on the beneficiary, although actual deductions can still depend on the route and institutions.