Currency trading proposal

[M Holmes]

This problem has been around a while. I've got around it personally by
using my book account in the US as a bank account. The problem being
that the liquidity of the account is lessened by it only being
convertible to books, though that seems to happen to a lot of my money
anyway.

The principle is reasonably sound however and with the willing
cooperation of two good folks on this list, one on each side of the
Atlantic, could be extended to everyone.

It'd obviously be better if the currency du jour was CD's rather than
books, given the interests of folks here, though with carefully selected
compan(ies) it might be possible to cover both.

How it might work:

1) the simple method:

Each of the two people have a bank account. When anyone wants something
from the other side of the pond, they send a cheque to the person on
their own side of the pond in their own currency. That gets put into the
designated account. The person on the other side of the pond then sends
out an equivalent cheque in the other currency to fulfill whatever order
has been arranged by the foreign buyer. The calculated cost to the buyer
would be at the prevailing exchange rate plus something to cover the
postal cost of sending a cheque at the other side, plus maybe a little
extra of which more later.

What this means basically is that the two designated bankers will have a
balance owing between them either one way or the other. In an ideal
world this would never get too far out of kilter. If it did, then some
form of transaction would happen to temporarily redress the balance.

This could involve cheques, which would incur the occasional transaction
cost. There might also be adverse movements in currency which would have
to be borne by one or other of the bankers. The Little Extra on each
transaction would be calculated to cover such costs. Given bank charges,
it would be easy to do this and still save everyone a lot of money in
the long run.

2) The other way:

Instead of bank accounts each banker has an account with a CD (and maybe
books as well) company (preferably one(s) which take online orders).

The first advantage of this is that to rederess out of kilter balances,
one banker can simply order CD's at his end of the pond at the request
of the other banker to rebalance the deficit. The bankers would
therefore preferably be people who already tend to look for stuff from
the other side of the pond. This saves on currency charges even for
rebalancing the accounts, and on the foreign orders of the bankers.

This would also mean that where the company itself held stock of the CD
required by the buyer, it could be ordered from the foreign distributor
and paid into the account of the domestic one.

The companies would be chosen for their likelihood to carry the sort of
stock required , thus saving the sending of cheques to other companies
when they didn't. Those companies woud have to be willing to hold an
account for the banker concerned, but given the likely trade generated,
that oughtn't to be a problem. It would also be preferable if they had a
personal enough relationship with the banker to be willing to send CD's
out to an address other than that of the banker (otherwise it would
involve repostage by the banker), which is stretching the rules if the
account were backed by a credit card.

And of course it would be necessary for the two bankers themselves to
trust each other, and be trusted by everyone else.

There would probably in this case need to be some extra on each
transaction to cover CD's going missing. They could then be reordered.
That would amount to insurance pooling between members of the list. The
other option would be that non appearance of ordered CD's are just a
problem between the buyer and the distributor. However the existence of
the banker account with the company would perhaps put them in an awkward
position where the insurance pooling would protect them.

Anyway. That's how it might work. I'm pretty sure that it could
relatively easily be set up by the second method in a way that would be
least hassle for the two bankers.

I'm willing to be one banker. I'm sure I've traded with enough people to
garner a vote of confidence (noting of course that Keith has two CD's
which appear to have gone missing and that I will honour if necessary)
in my honesty. I'd hope that Andy Garibaldi would establish the
necessary account at C&D for me since it would almost be easier given
the amount I already buy there.

What would be needed to try this is someone at the other end who
regularly wants Brit stuff anyway, and who can get an account with one
of the US dealers. And of course the interest of others from the list of
running such a system.

Over to you guys....

FoFP