Is the weakening dollar going to affect your CU?
Unless you are an ostrich and have had your head in the sand, the US economy isn’t doing great. Arguably we are already in a recession with the dreaded word "Depression" occasionally getting thrown around if we have any type of bank runs or if more large investment or retail banks go under like Bear Stearns. Many of our members will also be experiencing this in the near future if not right now.
So in these times of devaluation of the USD, wouldn’t it be nice to have some money in euros or pounds? Lots of our members travel abroad and need euros anyway. Other are interested in euros specifically to hedge their bets in the US economy. Short of having member surveys in hand, it seems their will be a growing need for foreign currency in the future. Many CU’s along the borders already handle currency exchange without much effort. Even CU’s with a large membership base the travels abroad can do currency exchange. But having euros in hand isn’t exactly the best way to transact business.
I’ve been chatting with some people around here about the concept of any online savings account that can hold multiple currencies. The member can simply log in to online banking and view each savings account denominated with different currencies. If the member started doubting the US dollar, they could simply transfer the money from the USD account to their EUR account and the FI would handle the actual currency exchange behind the scenes.
The only company I’ve been able to find that does anything remotely similar is HSBC of Singapore, but that’s not to say others aren’t doing it. CU’s can hold foreign currency. So what’s stopping the creation of this kind of account for the US consumer? Is it a technology hurdle with online banking? Core processor support? Have other CU’s even had members express a need for such an account or is this more a private banking thing that CU’s can’t really touch?
Call me an optimist but I dont think that this is a long term trend with our economy.
The reason this hasnt been a big thing in banking, I assume, is that the Dollar has always been strong and the service was unneeded.
It is a cool idea, and for my employee who hails from South Africa, it would be interesting as he plans his trips around the strength of the Rand. The idea that he could flip flop when it is R12to$1 and flip back to R4to$1 could allow him to make some serious money.
But that would turn CUs into currency exchange brokers. That just leaves a weird taste in my mouth.
Even though I would use it as an income tool myself and would probably switch to any CU in my area offering the service because I am geeky like that
Seems like it should be a pretty easy thing to accomplish. I’d open one too!
It is much more complicated than it appears on the surface. NCUA currently as an advanced notice of proposed rulemaking which would address whether the investment rules should be changed to allow corporate and natural person federal credit unions to make certain investments in foreign currency. This comes from the ANPR:
“NCUA regulations implement the authority in the Act and establish requirements and limitations under which FCUs and corporates, respectively under Parts 703 and 704, can make investments. 12 CFR Parts 703, 704. The corporate regulation expressly states corporates may only make investments denominated in U.S. dollars. 12 CFR 704.5(b). For FCUs, the general investment rule does not expressly prohibit foreign currency denominated investments, but ties variable rate investments to a domestic interest rate and, consequently, limits FCU investment authority to U.S. dollars. 12 CFR 703.14(a).”
Here’s a link to the ANPR itself:
http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/P-703-704.pdf
From the credit unions, the thought seems to be that if you want to offer foreign currency accounts, you’d need to invest in foreign currency for risk reasons. You may want to read some of the comments written in in response to the ANPR to see more of the industry concerns.
@The Compliance Guy –
Dang. I’m not exactly sure how it would work if the member would actually own the account through some type of pass-thru relationship with an external firm or what. You could structure it as a CUSO that invested in foreign currency, let the actual CU hold the funds as you suggest, or try out some type of loan-like participation with a foreign investment firm. But all great points. I’ll have to read the proposed law and comments. Thanks for the heads up!
A weaker dollar isn’t bad for everyone. Because of a weaker dollar, one of our SEG’s has found lots of new freinds they didn’t even know they had. Now their products cost less than those of their European counterparts. It’s actually be somewhat revitalizing to the local plant here, even some retired employees were going back in to work.