mdQ:
Consequences of switching to a "Swiss Franc" in an international transaction
Let's say we are conducting an international transaction between two customers in a currency exchange shop. The two customers can exchange currencies. The currency exchange shop has the following currency options:
USD
GBP
The customer (Alice) wants to convert some GBP to USD, and the other customer (Bob) wants to convert some USD to GBP.
The shop's two managers, Rick and Sam, decide how to handle this request.
Rick, who is the manager of the GBP (Bob), decides to just sell Bob the EUR (the GBP on the shop's books). That is, he will convert Bob's USD to EUR and then send Bob the EUR. This is straightforward.
But, Sam, who is the manager of the USD (Alice), doesn't think that it's straightforward. He wants the GBP (Bob) to pay him with the USD (Alice). That is, he wants Bob to send Alice the EUR that he received.
When Sam (Alice) tells Rick (Bob) this, Rick (Bob) says that this is not possible. Sam (Alice) has to pay Bob the USD (Alice) with the EUR.
Question: What consequences are there to this?
A:
In the absence of any evidence or argument to the contrary, it is reasonable to assume that a national currency is backed up by sovereign wealth and financial assets. So, if Alice requests the GBP, then a mechanism should exist for her to pay her national debts in EUR. And, indeed, if Rick (Bob) pays with EUR, then Bob will effectively be buying money from his own country, which is not possible as a sovereign entity.
This might not be the view that Rick (Bob) holds, but it's a position that is consistent with the rules of the exchange.
I don't think that there will be any consequence in your scenario.
There are differences between money denominated in different currencies and money denominated in the same currency. Suppose that the exchange rates are 1 USD = 1 GBP. Rick is free to give Alice a bundle of euros. That would mean that Rick has a total of 1 USD and 1 GBP on his books. This, in turn, means that he has 1 USD worth of euros and 1 GBP worth of dollars.
Related links: