Passing the buck

Praveen Sathe guides you through the intricacies of foreign exchange when on tour...

In the mid-1980s, there were press reports that when Michael Ferreira was readying to defend his world billiards championship title, instead of practicing his cues on the green baize, he was running from pillar to post in the labyrinthine corridors of RBI trying to tie up the meagre foreign exchange that he (or indeed anyone else travelling out of the country then) was allowed. Then, of course, it was projected as step motherly treatment meted out to a world champion when lesser-gifted sportsmen (read cricketers) were mollycoddled. The irony nonetheless was not lost on the nation that foreign exchange rules, with the draconian FERA leading the pack, did not spare even national heroes. Foreign currency, at the time, was a commodity protected by the government like the proverbial family silver. Unless you broke a couple of rules, you could never hope to survive, leave alone enjoy on a foreign trip.

Cut to the mid 1990s - even as my wife was readying for a trip abroad and odds and ends were being tied up on the insurance and ECNR front, forex was literally the last thing on the agenda. Why? Because we knew that a call to one of the official moneychangers ensured a smart representative arriving post haste, working out the requirements, endorsing the passport and leaving in a jiffy. And that was exactly how it went.

So what changed in between Ferreira’s rounds of the RBIand my wife’s trip? Quite a few things, actually.

Till the late 1980s the logic (somewhat justifiably) had been that a poor country like ours - forex reserves in the Swiss vaults notwithstanding - could ill-afford to be liberal with the US greenback. The official line was that profligacy on this front would lead to the country having to mortgage its riches for mere survival. Despite such parsimony, in 1991, the government had to in any case ferry overseas gold reserves when the national reserves dipped to a precarious low of a few days' imports.

That low was followed by borrowings from the IMF which came with conditions attached and started the first wave of liberalisation. The economy kickstarted and huge foreign exchange earnings on the back of galloping exports was the consequence. Today, India’s foreign exchange reserves is touching an all time high of over US $ 80 billion. The government is therefore not too chary of allowing some of it to be taken abroad by travellers.

Also, the rise of outbound business travel from India meant forex rules had to be changed to get them in sync with ground realities and requirements of the traveller. Hence, the vice-like grip of the government on the family silver has relaxed. Today, you get enough dollars to travel abroad, if not as a prince, then at least as a well heeled commoner.

Today there are innumerable forex dealers called Full-fledged Money Changers (FFMCs) who buy as well as sell foreign currency and who can help you convert your rupees into foreign currency or traveller cheques.

So what is the fine print regarding the rules when it comes to carrying foreign exchange on your international trip?

General Rules

Any Indian citizen travelling abroad is entitled to carry along with him up to a total of US$ 10,000 in any calendar year. This qualifies as the Basic travel Quota (BTQ) that (s)he is entitled to irrespective of the reason of the visit – i.e. whether business, pleasure or both. Out of this total limit however only US$ 2000 may be carried as hard cash and the rest as Traveller Cheques (TCs) or any other form.

A business traveller however can, in addition, carry up to US$ 25,000 per trip, irrespective of the number of trips. On each trip he may carry up to US$ 2000 in cash. The earlier rule of allowances based on seniority with Directors allowed the maximum and progressive reduction as you went lower down the corporate order has been done away with completely as also attendant forms and explanation about who needs to carry how much and for what. Further the earlier bifurcations required a traveller to explain how much he spent on accommodation, entertainment etc. with each head again placed under individual upper limits. All these rules have been repealed and the flat limit as mentioned above now applies.

As always there is a rider attached in terms of how you can exchange the Indian rupees for forex. Of the total money you carry to your FFMC, only Rs 50,000 can be accepted by the FFMC in cash and the rest has to be either as a Draft or Banker’s Pay Order. If the FFMC knows you well, a cheque might be accepted on trust. The need for a Demand Draft means the attendant problems of quoting PAN for a higher value single draft. Of course then the way out is to carry multiple drafts drawn on various banks, each of which is within the allowable limit.

In a nutshell, the business traveller, in addition to the US$ 25,000 maximum limit that his company entitles him to carry, is also allowed his personal BTQ to the maximum of US$ 10,000 per annum for personal expenses, shopping, entertainment, etc.

Any traveller who has returned to India has to re-convert to Indian rupees the foreign currency he holds in excess of US$ 2000 through the FFMC within 180 days of arrival. The equivalent of US$ 2000 can now be kept with oneself without any contravention of rules.

How would this total allowable forex be carried? We study below the various forms and also analyse each and try to find out what fits best and when.

The various forms of carrying forex when travelling abroad are;

1. Hard cash
2. Traveller cheques
3. International Credit / Debit Cards.
4. Advance remittances.
5. Drafts / Banker's Pay orders in the name of self.

Hard Cash

For all the protestations of the European community, the US dollar remains the currency of choice when it comes to carrying hard cash on a trip abroad. It is the most freely traded and the only currency on which the entire world exhibits a high level of confidence. The US dollar therefore has the advantage of universal acceptability. Though the Euro aspires for a similar status, outside the European continent, it has still to really arrive. Of course, on a trip to Britain, the Pound Sterling is a favourite, as indeed are a host of other freely tradable currencies of the local countries you are plan to travel to. It is always best to carry some local currency, say the Thai Baht, Saudi Riyal, Malaysian Ringitt etc. if travelling to these countries, if only to take care of the immediate expenses on landing – say a local meal at the airport cafeteria or the taxi fare to your first destination or hotel. The rest can be carried in US Dollars since generally the local conversion in the foreign land would turn out to be profitable in terms of exchange rates.

There are in the world today at least 20 freely tradable currencies in which you may carry foreign exchange in cash within the upper limit of the equivalent of US $ 2000. Whereas local currencies of European countries have been phased out of this list after the Euro was introduced, the past few years has seen the addition of humbler currencies like the Jordanian Dinar, Egyptian Pound as well as the stronger Australian, Singapore and NZ Dollar. A list of all these currencies is available at any official moneychanger, forex dealer, recognised banks etc.

In terms of the actual cash being carried by the outbound traveller today, almost 80 per cent is made up of the US Dollar followed by the Euro, the Pound Sterling and then the smaller currencies.

It also makes more sense in the current scenario to carry most of the forex in US Dollars because the modest Indian Rupee has risen almost five per cent against the US Dollar in the last six months making the purchase of the US Dollar cheaper.

The earlier system of endorsing on your passport the forex that you are carrying has been done away with unless the traveller insists on doing so. Surprisingly, what this means is you can technically visit more than one FFMC and take the equivalent of US 2000 in cash from each, thus rather openly flouting the cash component rule.

Traveller’s Cheques

They are not just the best and safest substitute but probably even better than hard cash because if lost, not anyone can really encash them unless he forges your signature excellently. In any case most moneychangers worldwide insist on cross checking your passport before encashing TCs and that means a double security check.

It is advisable to note the numbers and other details of the TCs and if possible also keep a photocopy of the same along with you. This will help in case the TCs get stolen or lost in travel.

TCs are available in various denominations and can be easily exchanged at all international airports, shopping malls and other important public places. In a particular case, a rather decrepit hotel in downtown Chicago happily accepted my TC without so much as a demur and returned the balance in cash.

In the case of loss of TCs, the first step is to inform the local branch of the issuer (Thomas Cook, American Express etc) who will then freeze the said TCs, add the numbers to the international ‘Hot list’ and block their encashment. Next it is advisable to file a police complaint and with the FIR (or whatever is the local international equivalent of the complaint) make a written application to the issuer stating the relevant details. They will in turn issue duplicate TCs.

Debit / Credit Cards

Most credit card issuing companies have quietly in the past few years converted all cards to internationally valid cards – quite a big relief from the ‘Valid only in India and Nepal’ byline of yore. This is hardly an indication that credit card companies have started developing confidence in the repayment capacity and inclinations of the average Indian. Rather, it is a simple extension of the local credit limits that they are offering. Thus a fairly handsome allowable credit limit of a few thousand Indian rupees just converts to a few hundred dollars to keep you above the international poverty line. If specially requested, a few companies of course do allow a temporary extension of credit limits when travelling abroad depending on past records, timely repayment history and production of a host of documents related to your tax returns, etc. Of course, as has been noted in the press quite regularly, the usurious rates of interest that credit card companies charge are explained away under the garb of it being an unsecured lending i.e. with no assets mortgaged by the borrower. Further the facility of paying only five per cent of the total payable outstanding amount and carrying the balance forward has led many a foreign traveller to splurge in haste and then repent in leisure after returning to the motherland.

There is also the question of conversion of the payment/charge that you have incurred in the foreign location and the attendant discrepancy. The exchange rate levied is often a bone of contention between the borrower and the card issuer. This happens because of the intercontinental time difference as well as the difference in the dates that you made the purchase and the date the merchant presented your charge slip for reimbursement. The attendant exchange rate fluctuations that happened in the interim and the complete inability of the ordinary traveller to fathom the nitty-gritty of all these conversions means there is no way he/she can argue and win his argument against the issuer.

Card issuing companies like Citibank or authorised dealers like Thomas Cook have however come out with a new concept called the Citibank Worldmoney Card (CWM) and the Thomas Cook Cash Passport (Visa Electron Debit card) respectively – here the card is allotted to an individual traveller or executive of an organisation and is preloaded with a credit of up to a maximum of US$ 10,000 (within the BTQ limits) payable by the parent corporate company in Indian rupees here in India itself. The minimum amount to be loaded the first time varies with the various players but starts at US$ 500 or so with later recharges starting at a minimum of US$ 250. This works internationally as a debit card happily accepted at all merchant establishments as well as ATMs. Further it is very safe as it is PIN controlled and a loss really means immediate locking of the card can happen electronically with no fear of embezzlement. Further if the executive overstays his assignment (as happens often in the case of IT companies' projects getting extended), then the corporate client can reload the card through the Citibank network and the credit is immediately available to the executive abroad. This card of course is not exactly a retail product and is currently being pushed only through the travel agent/FFMC route to keep some level of exclusivity and also because its real charm is only for the executive of bigger organisations or the individual foreign traveller. A Citibank account holder can however get this card from his branch if he so wishes.

Since there is no such thing as a free lunch, there is the ubiquitous usage charge every time it is used at ATMs for withdrawals or at merchant establishments – charges included ATM charges, service charges, conversion charges etc. but there is in any case a cap of US$ 2 that can be charged to the user per transaction. This card incidentally cannot be used in India after returning as the forex loaded on to it and left unused has to be returned to the FFMC/authorised dealer.

Outward Remittances

This is a route whereby you can send cash that is legitimately yours ahead of you to a pre-designated account that you hold in the country you are travelling to. This is obviously applicable only to companies who have international operations, export houses etc. and have legitimate earnings abroad. A remittance request has to be of course accompanied by a host of documents explaining the need for such transfers with each application individually vetted by the RBI, leading to bureaucratic tangles. In any case an infrequent business traveller cannot use this route.

Draft / Banker's Pay Order

This is akin to carrying a self- addressed draft issued by your local bank and payable abroad to yourself. Students and emigrants who need to open an account as soon as possible in the country they are travelling to mainly use it. To the short-term business traveller of course this is of no use.

Best Bet – TCs

On balance then, at the end of the day, what is the best way to carry forex? Undoubtedly TCs offer the best in terms of safety, ease of conversion and universal acceptability. Concepts like the CWM, cash passport, albeit a trifle costly as options, will eventually catch up anyway at the retail level for the individual traveller as well. Further, as the RBI liberalises the rules even more, newer and more exciting products will be introduced for the greater convenience of the outbound Indian traveller. What is certain is that it is easier today and going to become easier still for the business traveller to not only undertake his trip but also enjoy it without the attendant pre-travel as well as post travel angst regarding forex requirements.