One of the things I’ve run into over the years is a need to change USD into CAD. The most common way people will deal with this is to go to their bank and make the currency exchange. The problem with this is that banks don’t give you a very good exchange rate. If the market rate is $1.30 CAD per $1 USD, the bank might only give you $1.27 CAD for each USD you give them. That’s a loss of $0.03 CAD by going to the bank vs going to the market. It might not seem like that much money, but if you’re exchanging $10,000 USD, going to the bank cost you $300 CAD. The more money you exchange, the more money you lose…and sometimes the spread is wider than $0.03.
So for those that don’t want to donate their money to banks that like to play the spread, what are our options?
- Bank exchanges
- Foreign exchange houses
- Norbert’s Gambit
- Market exchange
I’ve already talked about the process of exchanging money with banks. It’s not a good deal for you. Maybe its convenient to use them for a few hundred dollars once or twice, but over the long run (or large sums) you’re going to be losing more money than convenience provided.
Foreign exchange houses operate in roughly the same way as the banks do. They make their money off the spread between market rates and the rate that they offer you. If you open a corporate account with them you’ll get “preferred” rates, which means that the spread is a bit smaller. In the end though, you’re getting into the exact same situation as you are with a bank.
Norbert’s Gambit is a bit more complicated. To run the gambit you need to have a trading account that allows you to buy stocks on both a Canadian and US exchange. The way it works is that you buy a well traded (high trade volume) blue chip stock on the US exchange (usually NYSE). You then talk to the company you have your trading account with and get them to “journal” it over to the Canadian exchange (TSE). “Journaling” doesn’t sell the stock. Instead it converts it from the USD version to the CAD version. Journaling can take a day or two to happen depending on the company that you have your account with. Once you the journaling process has completed you can then sell the stocks on the Canadian exchange for CAD.
The theory behind this move is that the stocks on the different markets have the currency exchange built into them. When you journal the exchange rate is based on what the difference in price is for the stock on one exchange versus the other. So, for example, you might buy NYSE:RY (Royal Bank of Canada) at today’s closing price of $49.06 USD. Once the journaling process has finished you may own TSE:RY at $67.98 CAD. If you were to sell it at that point you’d be getting an exchange rate of $1.3856 (CAD for each USD). At the close of day today, the exchange rate on xe.com was $1.3846.
There’s a chance that during the period of time that it takes to journal the shares from one exchange to another the stock price will move in a way that isn’t in your favour, so there is some risk
VBCE (Vancouver Bullion and Currency Exchange) operates in a very similar manner to any other exchange house. The difference is that it gives you spot pricing on the exchange you make. When you log into the website you request a quote. That quote, in my experience is almost identical to what you see on xe.com. For example, my first exchange with VBCE was at a rate of $1.444 while xe.com showed $1.447. Once you accept a quote then you fund the transaction. USD is sent from you to VBCE and CAD is sent back to you. Exchange complete.
VBCE allows you to fund your transaction via direct withdrawal and payment can be done via direct deposit. All you need to do is fill out the funding/payment web page with your pre-approved banking information and the process starts. The money movement, in my experience happens over a couple of days. First the payment of CAD to your account happens within 24hrs. The withdrawal of USD seems to take 1-2 business days. The nice thing about this is that you don’t have to go to a physical bank/exchange house nor do you have to place a call to do journaling. Currency exchange that you don’t have to wear pants for!
Because you accept a spot price before you do any of the money transfers the exchange rate that you accept is set set in stone. If the process of moving money takes a couple of days (or more if it’s over a weekend) you still get the accepted spot price. Currency fluctuation during between the time of the spot price and the final money deposit/withdrawal is of no concern to you. So from this standpoint you’re not only getting very close to the market rate, but you’re also protected from market movement.
Setting up a VBCE account wasn’t something that I just did online in 10 minutes. I needed to fill out a form that included banking references, talk with a representative on the phone and wait for VBCE to do their due diligence. The entire process took close to two weeks.
The process of sending paperwork and information to/from VBCE was not like anything I’ve dealt with before. I had to fill out paper copies of the forms and then scan them. The resulting pdfs and other required documents had to be zipped up and that zip file needed to be password protected. I then was instructed to email the zip file to them. A day later I got a phone call and we verbally exchanged the password to the file. Once my account was enabled I received instructions on how to make the transfer, my user name and my password. These came in a password protected zip file. Again, we verbally exchanged the password.
Now, I’m not pretending that password protected zip and pdf files are the end-all-be-all of security, but it was nice to see a company putting some thought into data security.
Fellow Western Dev, Simon Timms, suggested that he had similar experiences to me when dealing with VBCE. Simon ran into two issues during the process though. First, VBCE forgot to call him to get the password for the zip file containing his application. After getting that resolved and moving through the application process, Simon receive his instruction pdf without any password protection. So it seems like there is a bit of variance in how VBCE is applying its processes.
The only issue that I’ve run into with VBCE to this point has been that there is no online password reset process. If you need to reset you password (don’t judge my lack of memory…I forgot to enter it into my password software) you will have to call them and do it over the phone. Not a problem but you can only do it during business hours in the Pacific timezone.
Overall, after a couple of months using VBCE I’m pretty happy with my choice to use VBCE. It’s convenient and it saves me a bunch of money.