Why You Might Need Central Bank Rates In Your ERP

Why You Might Need Central Bank Rates In Your ERP

Currency exchange rates are needed in ERP applications, to convert foreign currency transactions to the reporting currency of your organization(s). But where do you get those rates from?

The accounting principles for most countries allow a market rate for the date or month in question. However, in some countries it is a statutory requirement, or at least recommended, to use the ‘official’ rate published by the central bank of that country.

Here at FXLoader, we’ve seen requests for such official rates much more frequently over the last two or three years.

Market Rates

ERP applications use exchange rates for converting accounting transactions between currencies, in order to report in the base currency of each organization and for processes such as revaluation, translation and re-measurement. Other application functions also convert between currencies, such as quotes in sales/CRM applications, but accounting transactions are where the rates come under most scrutiny.

Market rates are most commonly used, and are accepted by the GAAP of most countries. The market rates are determined by various FX markets, based on buy and sell orders at a given time. Most ERPs accept rates daily as the maximum frequency, and a mid-point of the bid/ask (buy/sell) rates is usually acceptable.

Official Central Bank Rates

Central banks and other official government bodies publish exchange rates for certain countries. They usually only publish rates between the currency of the country and a selected set of other currencies.

The rates are published in a variety of ways, ranging from a full web service/data feed to printing in a newspaper. Most countries will at least publish to a website.

These rates are ultimately derived from the market, via some mechanism defined by the organization publishing them.

Some countries mandate the use of these ‘official’ rates for certain types of reporting, others will recommend using them over market rates. It is often hard to tell which countries and which exact reporting, but patterns have emerged from requests from our clients.

Which Countries?

  • European Central Bank (ECB) – all Eurozone countries – rates updated daily between EUR and around 33 major currencies, in XML format
  • Bank Of England – UK – rates updated daily between GBP and approximately 26 major currencies and some USD and EUR rates, in XML format
  • UK HMRC – UK tax authority – rates updated monthly between GBP and all trade-able currencies, in XML format
  • Mexico – rate between MXN and USD updated daily to a website and newspaper
  • Brazil – rates between BRL and USD, EUR updated daily and published to a website
  • Australia
  • Canada
  • China
  • Bulgaria
  • Chile
  • Czech Republic
  • Hungary
  • India
  • Poland
  • Romania
  • Russia
  • Uruguay
  • Israel
  • Philippines

We have clients using ‘official’ rates for the Eurozone, UK, Mexico, Brazil, Bulgaria, Poland, Russia (for expenses) and Uruguay. The most commonly requested are Mexico and Brazil.

Where to get Central Bank Rates

If you are entering rates into your application manually, you just need to find the website or newspaper where they are published.

If you want to automate the upload of rates, this can be done for those that provide a proper feed. Our FXLoader product offers this for the ECB, Bank of England and UK HMRC. For those that do not offer a data feed, our partner Xignite, ‘the market data cloud’, provides the rates as a feed from whichever website they are published to. They are one of the only providers doing so, making their offering unique industry. This means we can offer any central bank source with FXLoader; Xignite has around 14 of these, and they can add any new country with a couple of week’s notice.

These central bank rates are free to access as it is public information– no subscription is required. If you want to access rates via the Xignite feed, there is a subscription fee payable for the convenience of having all rates available in one place and the peace of mind of sourcing the data from a reliable provider.

Usage in Global Organizations

International organizations tend to use a single ERP globally. They often mix market rates with central bank rates in one of two ways:
1. Load market rates for every currency combination needed across all countries, then overwrite with from/to combinations provided by specific central banks.
2. Load market rates for every currency combination needed across all countries, then load central bank rates into a separate ‘rate type’ for countries that need them. This is possible if the ERP allows different rate types to be used in different parts of the system.

Find Out More

If you’d like to get in touch, we’d we very happy to discuss your particular situation. We’ve probably come across it before, and if not, we have the contacts to find out the answers.

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