International Travel: cash, cards and currency exchange
Most of our readership on the Rand Rescue blog will undoubtedly have travelled the world a bit, and financial affairs for the traveller would probably not be so daunting.
Nevertheless, whether you’re a novice nomad or a seasoned traveller, there may be some money matters you’re not aware of or may be misinformed about when travelling abroad.
The do’s and don’ts for SA travellers
Since most of our readers will either be from South Africa or have to travel across SA borders in future, let’s first cover some basics for South African travellers.
One usually thinks of money in terms of the cash we carry on our persons or in a digital format on our card or in our accounts, but it’s important to bear in mind that your valuables will also be scrutinised to determine the ‘currency’ you carry across borders.
Most travellers don’t consider that money can be laundered in numerous ways and this often translates to people converting cash to physical items which can then be converted back to money once across the border.
For this very reason it’s crucial that all valuables you take in and out of a country be registered with customs before you embark to allow reimportation. Valuables will be inventoried using identifiable marks or serial numbers, so if the items you wish to travel with lack such identifiable marks you will need to discuss this with customs well in advance.
To play it safe, some travellers do an extensive inventory of their belongings (photographs, serial numbers etc.) and keep track of both this and customs records.
But it’s not just the physical goods that need declaration (via an NEP form), you are also required to seek authorisation if the insurance on your goods exceeds R50 000 (obtained from a bank) and should it exceed R200 000 you will need approval from the Financial Surveillance Department of SARB.
Cash on hand
When coming into South Africa, you’re allowed up to the R25 000 or the equivalent of $10 000 in foreign currency as carry-on.
For those travelling within the Common Monetary Area (South Africa, Namibia, Lesotho and Swaziland), the limit on Rands is waived.
When exiting South Africa for travel, you’re allowed foreign currency to the equivalent of R160 000 per adult and R50 000 per child under the age of twelve per calendar year. These amounts need to be cleared by an authorised dealer and presented to customs. Should such clearance not be acquired you’re allowed a maximum of R25 000 per person as per the instructions of the South African Revenue Service.
For South Africa, as for most other countries in the world, you will be allowed to carry more than the stipulated amounts, but you will have to declare the excess or else you may be considered guilty of money laundering. A concession can be made for South Africans who want to carry more than R25 000, if this amount will be used for import duties on their return, but this needs to be stipulated and approved by the Exchange Control Department of the SARB.
With regards to Kruger Rands, South Africans are not allowed to take Kruger Rands out of the country without the explicit consent of the South African Reserve Bank. Foreign visitors are allowed a maximum of five Kruger Rands when exiting South Africa.
Additional points to remember
When leaving SA:
· You may not buy foreign currency more than 60 days before your departure
When returning to SA:
· Foreign currency must be converted to Rand within 30 days of returning from your travels.
Other rules and allowances
Most travellers will prefer not to carry that much cash on them and will rather pay with their cards or use forex cards or other forex services.
South Africans over the age of 18 are allowed an annual discretionary allowance of R1 million out of South Africa per calendar year and transactions will need to be re. For investment purposes Saffas are allowed up to R10 million in offshore investments provided that a tax clearance certificate is obtained for any amounts exceeding the annual discretionary allowance. Children under the age of 18 are allowed a maximum of R200 000 for offshore spending.
· Your travel allowance may not be paid into a third-party account if it is in a digital format.
· Funds which form part of a travel allowance and aren’t used for the holiday expenditure (leftover funds) may not be kept offshore or used to buy offshore assets.
Beware the credit card pitfall!
Though you’re allowed to transfer your funds to your own accounts and use these allowances accordingly while travelling abroad, there’s an unfortunate piece of red tape which could land you in trouble should you not be aware of it.
South African exchange control regulations stipulate that South Africans are only allowed to use their credit or debit cards abroad during the year in which they left the country.
Should you, for instance, leave South Africa for a holiday on 25 December in the one year and return on 25 January of the next year, you will only be permitted to use your cards for the 7 days between 25 and 31 December and not for the remaining 25 days of January.
South Africans who travel or live abroad for extended periods often overlook this stipulation, and most South African banks even issue credit cards to South African residents abroad well after they’ve left the country, which is also a contravention of the rule.
Indeed, this issue is not one which the SARB and SARS pursues that often, but with the increase in financial surveillance and the common reporting standard (CRS) between countries which are part of the Organisation for Economic Co-operation and Development (OECD), it’s becoming increasingly effortless for tax authorities to keep track of cross-border spending and if they catch you, you may face hefty fines or even jailtime.
International rules and guidelines
There are vast regional differences when it comes to the use of money across borders and it’s important to consult with an authorised dealer and, if in doubt, the tax and customs authorities in the countries you wish to visit before you travel.
Nevertheless, we provide some general insights below.
Where to convert your funds
Foreign exchange dealers make their money via a spread. The bid-ask spread is the difference the cost of purchasing and selling currency for a dealer. The problem with the spread is that most dealers aren’t forthcoming as to this difference and the difference is totally down to their own discretion.
When most people travel abroad, they tend to fall for the zero commission signs at dealers, not realising that commission is hardly where the dealer’s profit lies. It’s therefore important to do your research before converting your funds abroad.
Travel agents often advise clients to steer clear of forex dealers in and around international travel venues like airports. These places generally see a high demand and as a result they don’t need to offer the most competitive rates as clients tend to convert their currency irrespective of the rates.
Travellers are also generally advised to steer clear of banks. These institutions bargain on clients’ trust (as most people are wary of forex dealers they don’t know), and therefore offer far less competitive rates. Since forex also usually make up a small section of a bank’s overall scope of business, they tend to put less effort into assuring good rates to clients.
Direct vs indirect quoting
Some of the more deceptive dealers tend to confuse clients by the way in which they quote their rates. In general when facing a quote screen, the higher price is what you would pay for a currency while the lower price is what you would receive when selling it.
But quoted rates can be tricky to understand depending on where you are in the world.
Most forex dealers will use ‘direct form’ when quoting rates, which means the currency will be cited against the US dollar (since it’s the strongest forex currency), i.e. 1 USD to this equivalent in the other currency. In commonwealth countries, however, the rates can use the indirect form, which states how much states how many US dollars represent 1 of the representative currency (British pound for instance).
Spot, tourist, cross, forward and non-deliverable forward rates
There are different types of exchange rates on offer and it may be confusing if you don’t know your way around the forex world.
Spot rate refers to the ‘interbank rate’ which represents the current market value (rate) for a currency at a particular point in time. Spot rates vary dramatically and are therefore only offered for immediate forex transactions. Travellers are also generally not allowed to exchange currency at a spot rate since this is used for larger transactions by forex traders.
The tourist rate is also known as the retail exchange rate. As a traveller, you will use a forex dealer or bank as a type of intermediary in exchanging currency. These dealers source currency from inter-bank markets and make the purchase at a spot contract rate. But since they serve as ‘middle-men’ in the transactions they need to cover their costs to generate a profit. This is done by asking a commission fee and/or offering a less favourable exchange rate than spot rates.
A cross rate refers to a currency exchange where neither the currency which is sold nor bought are the official currency in the country where the foreign exchange transaction takes place. It’s also become quite common to refer to the cross rate as any exchange which doesn’t involve the US dollar.
The forward rate refers to forex transactions which are made in advance. This rate lets parties involved in the transaction buy and sell currency at an agreed rate before the actual exchange is made.
Non-deliverable forward rate
Non-deliverable forwards are similar to outright forward rates but hedging is allowed where regulations restrict foreign access or those involved in the transaction want to compensate for risk. This allows for a fixing rate at maturity or once the transaction is finally made.
It happens at times that countries are blacklisted by other countries for several reasons.
Case in point is the US which, after the September 11 attacks in 2001 revised rules of trade with foreign entities. This led to US forex dealers refusing to trade with traders in certain countries. Traders on the US Office of Foreign Assets and Control (OFAC) blacklist are still barred from trading with US forex dealers.
There is also the perception that Islamic banking, and countries with a predominantly Islamic citizenry doesn’t allow forex, but this isn’t entirely true. Islamic banking has merely adapted their policies to include ‘swap-free’ accounts which eliminate the levying of interest, commission or other charges on forex transactions.
If you’ve an interest in forex trading as opposed to simply exchanging your currency for a local one while travelling, the rules change a bit as you go across the world. While many countries offer somewhat unregulated forex trading, other countries have restrictions in place (including South Africa which requires a forex license regulated by the Financial Services Board).
Countries with forex restrictions are:
· North Korea
· South Korea
· South Africa
Forex brokers also tend to have regional or limited broker licenses which bars them from trading on behalf of or within certain regions. This is usually due to red tape involved in trading. Forex brokers who want to get US traders onboard need to get a license regulated by the US National Futures Association (NFA) which requires exorbitant amounts of locked down capital for a forex broker license.
Rand Rescue to the rescue
This may all sound extremely perplexing to you and most people are quite anxious when it comes to managing their money while travelling abroad. You needn’t despair though, as Rand Rescue is here to assist you with your forex and cross-border financial needs.
We offer better rates than most banks, fast and secure payments worldwide as well as immediate and forward contracts.
Open your free account now, or leave your details below if you have any questions.