Choosing to do business in $dollars, instead of £Sterling

currency exchange boardWhile there is uncertainty and volatility in currency exchange rates, as has been the case since June 2016 and the EU Referendum outcome, many UK businesses might find it more attractive to trade in another currency, especially if they are purchasing goods in another currency.

Since June the value of £Sterling has plummeted by some 15% against the $Dollar and around 12% against the €Euro, making imports, such as raw materials, goods and supplies to the UK more expensive, although it has been positive for those UK companies that trade overseas.

This month the US Federal Reserve increased interest rates by 0.25%, suggesting that there is more confidence in the US economy and in the strength of the $Dollar.

The business advantages of using another currency

It is plainly of no benefit to a UK business operating only in the UK to switch all its transactions to another currency, but the situation is different for exporters and those who pay for purchases in another currency.

For these businesses the decision to switch, most likely to $Dollars, is about taking a longer term view of risk and currency values.

Many businesses work in other currencies and the $Dollar is for many industries the standard currency, as well as the one used when doing business in the Far East.

Opting for trading in $Dollars is changing the way you think about your business, in particular about paying bills, where it might be advantageous to have a $Dollar currency account.

One question to ask is what currency is more suitable given that UK interest rates are driven by the desire to protect employment.  Are US interest rates more stable that the UK?  If the UK is keeping interest rates low to promote employment, on one level that is a measure of instability.

Interest rates have been held down for far longer than they should have been since the 2008 Financial crisis and we would go for trading in $Dollars rather than any other currency.  It is all about managing risk.

But there is a note of caution. The cost of commercial insurance policies for those using $Dollars tends to be much more expensive due to the assumption that a business is more likely to be exposed to US law and the prospect of litigation.

If you got this far, I thank you for reading my blogs and wish you a very happy New Year.

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