Mon 2nd July 2012
By Peter Lavelle
In this post I want to address the question: Can you buy foreign exchange at the Bank of England rate? This might be of interest if you want to exchange currencies, either because you’re emigrating or buying a foreign property, but aren’t sure how to do so at the best rate.
No Bank of England rate
The first point I want to make with this question is that there’s no such thing as the Bank of England foreign exchange rate. By this I mean the Bank of England does not set the exchange rate, and has only indirect influence over it. This includes through such things as setting interest rates, and deciding whether or not to extend its program of quantitative easing.
Instead, what you might be referring to here is the interbank foreign exchange rate. This is the rate at which banks buy and sell currency with each other on an international basis, and is available through websites such as the BBC and Google. When you exchange currencies, you can’t do so at the interbank rate, because this concerns transactions of billions of pounds. Just like economies of scale, banks enjoy these rates because they’re moving so much.
How to get a good rate?
So you can’t exchange currencies at the interbank rate. Given that, what you must do when you change currencies is come as close to the rate as possible. For instance, imagine one day that the interbank rate is 1.25 for changing pounds into euros. You might call your bank, and find out they’re offering a rate of 1.19 then. This means that for each pound you exchange you’re losing 6 cents.
On the other hand, a foreign exchange specialist such as ourselves might be offering a rate of 1.23. This is 4 cents close to the interbank rate, and therefore means that when you change currencies you lose a lot less. This is the general idea: get as close to that benchmark rate as possible. To do so, your best bet is to speak to as many services as you can.
Research in advance
In addition, aside from the fact that different services provide different exchange rates, there’s also the fact that the interbank rate itself changes. This depends on the economic and political developments of the time. For instance, if the UK expands 0.5%, that’s good for the country, and encourages people to buy the pound.
But since the interbank rate changes too, it therefore pays to start looking at the exchange rates as far in advance as possible. This is because, if you start a month before you need to change currencies, you leave a bigger window to receive a good rate than if you leave it until the day before you need the currency.
Get in touch
I do hope this post has been useful.
If you have an questions not answered here, or would like to find out more, don’t hesitate to contact us at foreign exchange specialist Pure FX. One of our specialist dealers would be delighted to provide an in-depth personal response to your query, free of charge.