In Israel, more than in most countries, foreign currency is an integral part of every facet of the country’s daily economic enterprises – private, business, and public sectors, alike.

A recent released study showed that 53% of financial support to Israeli charities came from abroad. Thus, making foreign exchange exchange fees, rates, and processing times of the utmost importance to Israeli charities.

(N.B. While this post is most relevant for charities operating in Israel, its underlying principles are true regardless of location.)

WHY USE A MONEY CHANGER?

Cost

When using traditional financial institutions to process foreign currency, fees tend to be higher. This impression holds both for foreign currency transfers (wires) and checks — this is of course, assuming that many individuals and charities aren’t using banks that specialize in foreign currency (i.e. bankers unlike me).

The belief — and not necessarily correct — is that money changers offer better exchange rates, as well. Again, this is not always the case (see previous parentheses).

Speed

Turnaround is always an important factor when receiving money from abroad. One, because of exposure to currency fluctuation. Two, because of cash flow.

While money changers may have a shorter turnaround than banks vis-a-vis transfers, they definitely have a shorter turnaround than banks vis-a-vis foreign currency checks. (Though, everything comes at a price.)

Wow, seems pretty good. Why in the world shouldn’t a nonprofit organization use a money changer!?

After all, doesn’t the charity have an obligation to its constituents to make sure that the money it raises arrives at its destination as quickly and as cheaply as possible?

NO.

The mission of the charity is to show its donors and relevant governmental agencies transparency, control, and accountability for ever cent, agurah, peso, and shilling raised.

With respect to this charge, money changers are a danger to proper book keeping and the transparency everyone is demanding:

1. Lack of Control and Transparency

Whenever an organization uses a money changer it is voluntarily relinquishing control and permitting a third party to handle its money. While receipts can be issued and paper-trails followed, a small but unavoidable black hole is created.

Instead of having a bank statement that clearly shows where the donation originated from, the bank page will simply show an generic “incoming wire” (from the money changer) or even worse, an ambiguous “cash deposit.”

True Story: I have seen nonprofits arrive at a bank to deposit tens of thousands of shekel IN CASH. Now is this really the kind of impression an organization wants to make to its bank, donor or oversight body? Somehow, a wad of bills in a paper bag just doesn’t scream “trust me.”

2. Blurred Beneficiaries

When money is given to a money changer, the intended recipient is not the one either directly receiving the money nor cashing the check.

This is especially problematic with foreign currency checks, where the intended beneficiary never even deposits the check into the bank — an issue that effects the donor perhaps even more than the charity.

True story: Charities have no way of knowing where its money changer might redeem its check. Some money changers use Arab Banks to clear their checks. Putting politics aside, donors (and sometimes even the IRS) get mighty curious when a check earmarked for an Israeli cause has either “Bank of Cairo” or “Bank of Jordan” stamped on the back.

3. Cost is Now a Secondary Concern

In a previous post I quoted documentation that specifically mentions that cost is an irrelevant factor when the IRS examines a charity for effectiveness:

The Treasury Department is standing by its suggestions, thus, signaling to all that “life is simply more expensive and inconvenient as a result of global terrorism, and everyone is expected to bear a share of the new costs of doing business.”

And the IRS isn’t the only one using similar logic.

AND SPEAKING OF COST…

Did I mention that money changers might not even be cheaper than banks? If you’re looking for proof, contact me. I’ll make you a believer.

Tizku Lemitzvot,

Shuey

Disclaimer: This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex, please refer all questions to qualified and licensed professional. Read the full disclaimer.

In the past I have written about the US dollars tough battle against a downward spiral. In short, the UnitedState’s dollar is fighting an increasingly gargantuan federal deficit and the prospect of continued low interest rates neither of which bode well for the strength of the dollar.

With that said, what happened last week that caused the dollar to soar against the shekel? Friday, October 23rd, saw the dollar close at 3.6972 while a week later on Friday, October 30th, the dollar closed at 3.7545 a jump of 1.5% in only seven days!

One, the Bank of Israel announced that it was not going to increase interest rates for November. Without going into detail and speaking only in broad terms, lower interest rates make a currency less desirable.

Two, reports that the United States economy grew for the first time in over a year. Helping this was another report that found that factory activity in the mid-US had also expanded. These reports help paint a picture that America could be on the road to reducing its debt and on the way to full economic recovery.

Three, and this might be the most important point, the market has been volatile this year (generally, for the good of everyone) and the end of the year is approaching. A financial advisor in Israel explained to me a current phenomenon: this past year has seen investors using the US dollar as a proxy for taking or reducing risk. In other words, when investors want risk, they sell dollars and when they want security they buy in dollars (investing in treasury bills and the like). The increase in dollar-based investment leads to an increase in demand and a shortening of supply hence the US dollar rises. More specifically, people are looking to hold on to whatever profits they have made this year and are buying dollars to secure these investments.

Please note: While this last item could affect the dollar for the next two months, this is in no way a prediction of the future. I have merely commented on the past. For an accurate read on what will/might happen, please visit your locally licensed financial advisor (i.e. not me).

Special thanks to the following periodicals that help me be an educated consumer:

New York Times Global Edition – Business

Globes: Israel’s Business Arena

Daily Forex

Forex Capital Markets

Tizku LeMitzvot [May you continue to merit doing good deeds],

Shuey

Summary of US Dollar’s Recent Activity

The peaks in the dollar/shekel exchange rate this past year and a half make me more nauseous that the merry-go-round at the local playground (and they really make me queasy). The dollar tanked and leveled out against the shekel at an 11-year low in late May of 2008, trading for 3.24. As if to prove itself, the dollar then proceeded to rise faster than analysts had predicted, peaking a little less than a year later in Mach of 2009 at 4.25. Since those glory days of March, the dollar has plummeted against all of the world’s currencies. Specifically, the last six months have seen the dollar drop against: the Pound, 7.2%; the Shekel, 8.9%; the Euro, 8.7%; and the Yen, 10.6%. With world markets (and charities financed by donations in US Dollars) hanging on the dollar’s every move, things are, once again, looking just a tad scary. Not monster-in-the-closet terrifying, mind you, but enough to make me bite my nails more often than I should.

Haaretz on Sunday summed up the danger of a low US dollar quite nicely:

The weakness of the dollar is problematic for almost the entire world…a low dollar makes it hard for them [Europeans and Israelis] to export their goods to the United States and other markets around the world that are linked to the dollar…The Americans must guard the dollar’s position as the world’s main currency for trade and savings, otherwise they’ll have a hard time continuing to issue bonds and rolling over their huge national debt.

What Should Nonprofits Be Thinking

What we in the nonprofit world need to realize is that the problems with the dollar are much larger than the USD/NIS rate of exchange. Changes in the dollar affect the world – Israel is just one of many. The Bank of Israel’s moves to buy dollars might be helping a little and the in the short term stemming the decline of the greenback, but Bank of Israel Governor Stanley Fischer is similar to David trying to fight Goliath armed with only a rubber band. Many argue that the problems of the US dollar are larger in scope and strength than anything that Fischer can throw at it.

With the future of the US Dollar unknown, where does it leave nonprofits – local and international – that operate in Israel financed by donors and/or foundations in the United States? Two words: budget low. A director of a nonprofit summed up his policy as follows: “I budget and then cut it by 10%. Then I cut it again another 10%.”

Taking it One Step Further

The primary responsibility of directors of charitable organizations is to ensure the continuation of their organization; they must adequately plan in order to protect their organization’s vital work. A surplus at the end of the fiscal year does not send the message of “mismanagement” to donors.  Conservative budgeting that guarantees the survival is objectively a very good thing and should be at the forefront of every director’s mind.

As a former boss of mine once said, “Charities can’t do charity.” Simply put, doing one favor or helping out one extra family could, literally, tip the balance, sending the organization into debt. Fiscal responsibility and a broad vision are crucial. Sometimes the needs of the many really do outweigh the needs of the few.

Tizku LeMitzvot,

Shuey