Multi-currency cards are easy-to-use prepaid cards that differ from conventional prepaid cards in that they offer the choice of loading cash in a number of foreign currencies.
This has several advantages. Apart from the fact that carrying plastic money protected by a code rather than cash is generally safer in a foreign country, these cards eliminate the need for carriers to visit money changers at the point of arrival.
Money can be withdrawn from any ATM in the currency of the destination country, which is especially favorable for frequent business travelers as holiday makers visiting more than one country as it gives them a locked-in exchange rate at the point of purchase and clear control over foreign currency spending. Furthermore, the card is not linked to any bank or credit card account.
One of the pioneers of prepaid multi-currency cards is credit-card company MasterCard, which issues such cards either under its own brand or in cooperation with local money-changing companies — with UAE Exchange in the UAE.
“Multi-currency travel prepaid cards take away the hassle and risk of carrying a lot of cash while also enabling cardholders to lock in exchange rates at the time of loading,” says Jason Tymms, MasterCard’s Director of Prepaid Business for Asia Pacific, Middle East and Africa.
Gocash, the first multi-currency prepaid card for the Middle East market, was launched by UAE Exchange in cooperation with MasterCard in December 2012 and has since proven that there is demand for such cards that can be used at more than 34 million merchant outlets and some 1.5 million ATMs worldwide.
The Gocash card can be loaded with US dollars, euros, UK pounds, Indian rupees, Australian dollars, Saudi Arabian riyals, Canadian dollars, Swiss francs, Thai baht, Singapore dollars, Turkish liras, Malaysian ringgits, Egyptian pounds, South African rands and Hong Kong dollars.
An equivalent of $5,000 can be preloaded onto the card in six of these 15 currencies, “bringing as much convenience for customers as possible”, says Y. Sudhir Kumar Shetty, who oversees the global operations of UAE Exchange, adding that the exchange rate lock facility of the card locks in the prevailing exchange rate at the time of purchase.
Another popular multi-currency card is the Multi-Currency Cash Passport offered by Travelex, also in partnership with MasterCard. It can be reloaded in Travelex shops all over the world with currently up to seven currencies.
“The card was developed in response to demand from customers searching for enhanced convenience while travelling abroad,” says Jon Dario, President, Travelex Currency Services. “As such, we look forward to adding additional currencies to continue to meet customers’ needs.”
Visa’s respective product is the multi-currency TravelMoney card, which is marketed under different brand names through partner companies.
The rate lock-in feature is excellent for GCC currencies of which all but one are pegged to the dollar and thus there is no volatility in exchange rates in case the dollar is used as a foreign currency on the card. However, in case of other currencies the lock-in feature can indeed work in favor of the traveler, but also against him, depending how the currency rate fluctuates after purchasing the currency card.
Users of multi-currency cards thus should convert their cash into plastic money as close as possible to the date of arrival at their foreign destination to reduce the risk of unfavorable currency fluctuations.
They should also take a look at the fees involved. Most, but not all of the MasterCard and Visa-powered multi-currency cards of different issuers charge annual card fees, ATM withdrawal fees, foreign transaction fees and even reload charges.
However, one convenience is that, in case a card is loaded with a few different currencies and one currency runs out, the amount can be taken and is exchanged from the available foreign funds on the card.
How a Multi-Currency Bank Account Can Help You Diversify Out of the Dollar?
for The Q Wealth Report
Anyone looking for currency diversification strategies should consider a multi-currency bank account. Unfortunately this banking product is virtually unknown in North America and the UK, although it is commonplace in some European countries.
I say ‘unfortunately’, because this is one of the most simple and convenient tools for anybody looking to diversify out of the dollar. In this article, I’ll explain more about multi-currency accounts and how you can open one.
A multi-currency account is simply a bank account, with a single account number, in which you can hold balances in various different currencies. For example, you log in through internet banking and immediately you see a summary screen showing you have so many US dollars, so many Euros, so many Canadian dollars, so many British pounds etc.
Many banks allow you to hold a wide range of currencies, including more exotic currencies. Some European banks now even allow you to hold ounces or grams of gold in your account alongside national currencies.
Advantages to this are numerous:
For a start, it is clearly a very convenient tool for anyone who is serious about diversifying currency risk. Instead of having lots of different account numbers and logins, you keep everything on one convenient screen. At any time you can easily exchange your balance in one currency (or part of it) for another currency.
You can wire money in and out in different currencies, to and from anywhere in the world, without the need for currency conversions. This type of account is therefore ideal if you frequently send and receive money internationally, perhaps dividend payments, or transfers related to an overseas property or family living abroad.
Banks normally permit you to go overdrawn in one particular currency, provided your overall ‘global’ balance is in the black.
You can have credit cards and checks linked to your main multi-currency account. Checks can be drawn in any currency. For credit cards, you normally have to choose one particular currency balance that will be debited
Multi-currency accounts are a good, conservative way to hedge against currency risks or make profits with fluctuations. Unlike ‘forex trading’ your account is not leveraged, so there is not so much potential profit but there is also less potential for loss.
This is an easy version of forex trading – for people who don’t want to have their eye on currency rates every minute or even every day.
A multi-currency bank account also beats currency ETFs hands down. With currency ETFs you buy and sell back to your base currency, paying a brokerage fee each time. With multi-currency accounts you hold the actual currency on bank deposit, rather than stock in an ETF.
Anyone who is serious about diversifying outside the dollar needs a foreign bank account –and for many people a multi-currency bank account is the logical choice.
But what about the IRS’ Foreign Bank Account Reporting requirements?
Simply by opening a personal account like this, you will not affect your tax situation in any way, neither positive nor negative. US persons will be liable to declare foreign bank accounts to the IRS.
However, as outlined above, there are many extra benefits besides tax benefits. One of the greatest advantages, besides the currency diversification out of the dollar, is privacy. Privacy is a basic human right, which is unfortunately disappearing fast when it comes to financial services, where domestic investments are basically an open book these days.
Although you might be obliged to report your offshore multi-currency account to the IRS, private parties like credit rating agencies or lawyers who might want to sue you certainly won’t know anything about a private foreign bank account of this nature.
The multi-currency account was not designed as a sophisticated financial instrument. Rather it’s an accident of history, something that developed in smaller European countries like Switzerland, Luxembourg and Andorra where individuals commonly needed bank checking accounts in various currencies.
This was especially true in the old days before the euro when Europeans did business in many different national currencies. Not coincidentally, these countries now offer the best international financial services as well as good banking privacy.
However, in modern private banking terms, such an account can provide a basic transactional banking relationship with a foreign bank, onto which you can tag many much more sophisticated wealth management services: for example, foreign currency loans for investing in bond holdings or stock portfolios. Most banks offer such services.
Needless to say, corporations, trusts, foundations and the like can also open multi-currency accounts and in such cases there is an even greater privacy benefit, and in some cases, depending on individual circumstances, tax reporting requirements may also be legally sidestepped.
How, then, can you open a multi-currency account?
Quite a number of banks in some European countries offer multi-currency services by default, as soon as you open account. Unfortunately, especially for US citizens, it has become very difficult to find a foreign bank that will open an account.
It is undoubtedly best if you can travel to meet the bank and open the account.
Personal meetings and referrals from known and trusted parties still open a lot of doors that initial research might suggest are closed!
It is, however, possible even today to open a multi-currency bank account through the mail.