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What is a currency certificate?

What is a currency certificate?

A currency certificate is also called a foreign exchange (Forex) certificate (FEC), and it validates that the bearer is entitled to a certain amount of foreign currency upon the redemption of the certificate, or that a certain amount of foreign currency was exchanged for it.

This is not to be confused with a certificate of currency, which is proof that some types of insurance are currently in effect. Currency certificates have been historically used in countries with closed or controlled economies, such as the Soviet Union, Cuba, and China.

Where there was a reason (and permission) to trade with foreign countries, FECs would be the receipt of the transaction that would entitle the bearer to a certain amount of local currency credit. These could be required to be used by tourists to the country, or by domestic companies purchasing imports.

These allow the government to closely monitor and control cash flows across their borders. The alternative in such situations is a black market, and of course the country will do what it can to prevent a black market from forming or growing. This may include offering a more favorable exchange rate that could be found elsewhere.

Today, most currencies are convertible, and most economies are open to foreign trade in a less-regulated way.

Keywords: China, #Forex, international trade, forex market, closed economies, non-convertible currencies, Cuba,