[DRAFT] Migrated from the 2021 post "Hard versus local currency, which currency to send?" [CONFIRM: migrate this post, and confirm the original publication date is shown]

What the two options mean

Hard currency means sending a widely traded currency, usually US dollars, euros or pounds sterling, into your partner's account. The partner, or their bank, then converts it locally into the currency they actually spend.

Local currency means the conversion happens before the money leaves, so the partner receives Kenyan shillings, Ghanaian cedis or Indian rupees directly.

The money reaches the same place either way. What changes is who does the conversion, at what rate, and whether anyone on your side can see it.

When local currency is usually cheaper

When you send hard currency, a second conversion happens at the far end, at a rate you did not negotiate and often cannot see. The partner's local bank sets it. In many markets that rate is materially worse than the one your provider could have agreed for the same trade.

Sending local currency removes that second conversion. One rate, agreed by you, applied once.

It also changes what you can report. You know the exact amount the partner will receive before the payment leaves, so budgets and grant agreements can be written in the currency the programme actually spends.

"By sending local currency we have not only reduced costs but increased cost transparency and our control when it comes to foreign exchange management. This has heightened our efficiency across the board."

— Susan Carr, Head of Finance [CONFIRM: organisation and permission to publish]

When hard currency is the right choice

Local currency is not always the answer. Four situations point the other way.

• The partner asks for it. Some hold dollar accounts and budget in dollars.

• Currency controls. Some countries restrict who may receive local currency, or how much.

• Onward payments. A partner buying imported goods may need dollars anyway.

• Availability. Some currencies cannot be delivered at all, or only in limited size.

Volatility cuts both ways. Holding a dollar balance protects a partner whose local currency is falling, but it exposes them to the reverse move, and to whatever rate their bank offers on the day they convert. Sending local currency shifts that timing decision to you, where it can be managed against a policy.

How to compare the two for one corridor

Take one country you pay regularly and run the comparison for a single payment. The exercise takes an afternoon.

• Ask what the partner received last time, in local currency.

• Divide it by the amount you sent, in pounds.

• Compare that all-in rate with the mid-market rate on the day.

• Ask your provider for a local currency price for the same trade.

• Compare the two all-in rates, not the two headline rates.

• Repeat for two or three months before deciding.

The number that matters is the amount that lands in the partner's account, not the rate on your confirmation. Once you have three months of it, the choice is usually obvious for that corridor, and it may differ from the answer in the next country.

What changes in your accounts

Currency choice affects reporting as well as cost. When you send local currency, the amount the partner will receive is fixed before the payment leaves, so a grant of a stated size in local currency can be honoured exactly.

When you send hard currency, the local value is set at the far end, on a date and at a rate you did not choose. Two grants of the same size in pounds can end up funding different amounts of work.

Agree with your partner, in writing, which currency the budget is denominated in and who carries the risk if the rate moves between agreement and payment. Most disputes about shortfalls trace back to that one omission.

What to ask your partner

Partners are the best source of evidence and they are rarely asked. Four questions are enough:

• Which currency do you hold your accounts in?

• What did your bank charge on the last conversion?

• Are there local rules on receiving foreign currency?

• Would local currency make your budgeting easier or harder?

Their answers, alongside your own rate comparison, will settle the question for that corridor better than any general rule. We are happy to run the comparison with you for the countries you pay most. [CONFIRM: how this service may be described]