Why repatriating FX profits is outdated and wrong
By Simon Hewitt, CEO & Innovations Officer at OtherPay
The repatriation of profit is outdated and wrong in a world demanding ethical and inclusive financial models.
In an increasingly interconnected global economy, cross-border transactions are more common than ever. Yet, behind the scenes, there is a practice that quietly undermines the economies where these transactions take place: The repatriation of foreign currency exchange (FX) profits.
For decades, financial institutions have reaped substantial gains by channelling FX profits back to their home countries, rather than allowing the economic value generated from these transactions to stay in the local communities where they occur.
This practice, while profitable for the institutions involved, raises ethical questions in today’s world – a world where there is a growing demand for more equitable and inclusive financial systems.
The Ethical Problem with FX Profit Repatriation
The global economy has reached a tipping point where business and ethics are no longer separate domains.
Consumers, investors, and policymakers increasingly demand transparency, fairness, and a more equitable distribution of wealth. Yet, traditional foreign exchange practices continue to funnel profits away from the countries where transactions occur.
For example, when a tourist uses their credit card in a foreign country, the currency conversion fees and FX profits often go back to the financial institution in the cardholder’s home country.
This model strips the local economy of its fair share of value from that transaction, contributing to capital outflows and depriving the local community of the economic benefits generated by tourism and commerce.
Repatriating FX profits exacerbates existing inequalities between wealthy, industrialized countries and developing nations. Many of these economies are already strained by capital flight and profit repatriation, leaving them less equipped to build resilient infrastructure, fund social programs, and achieve economic self-sufficiency.
By denying these regions their fair share of FX profits, the traditional financial system continues to prioritize the interests of large financial institutions over the welfare of local economies.
Why Retaining FX Profits Locally Benefits Everyone
Imagine an alternative: A system that allows FX profits to stay in the country where transactions occur. Such a model not only respects the economic contributions of local communities but also fosters growth and prosperity within those regions.
Retaining FX profits locally means that a portion of each cross-border transaction directly supports the local economy. This approach has several key benefits:
- Enhanced Economic Development: Retaining FX profits locally funds education, healthcare, and infrastructure, driving economic growth and stability.
- Empowering Small Businesses: Keeping profits within local economies improves access to finance, supports small businesses, reduces poverty, and boosts employment.
- Fairer Wealth Distribution: Ethical finance ensures wealth stays where it’s generated, benefiting local communities rather than global financial giants.
- Stronger Consumer Trust: Consumers value ethical finance; prioritizing local economies fosters trust, loyalty, and attracts socially conscious customers.
Of course, Dynamic Currency Conversion (DCC) could serve as a mechanism for resolving FX repatriation by allowing transactions to be processed in the consumer’s home currency, effectively converting funds at the point of sale and easing the complexity of cross-border currency flows.
However, enforcing DCC as a preferred or mandatory solution over a centrally controlled and unified system could lead to inconsistent exchange rates, increased costs for consumers, and potential misuse by merchants incentivized by profit-sharing models, ultimately undermining trust and fairness in the process.
The Call for a New Ethical Standard in FX
As consumers and investors push for more ethical financial solutions, the time has come to revisit the repatriation of FX profits.
Alternative payment systems that support local economies can help reshape the global financial landscape to be more equitable and inclusive.
OtherPay’s innovation in fintech and decentralized finance provide viable avenues to make this shift possible, enabling new models of FX that are both profitable and socially responsible.
Policymakers can also play a vital role in encouraging this shift by implementing policies that incentivize ethical FX practices.
By collaborating with technology providers, financial institutions, and local governments, a fairer system of foreign exchange is within reach.
