A comprehensive guide to international payments

What is an international payment?

An international payment is a money transfer that crosses national borders and usually involves 2 different currencies, for example, rands and pounds (GBP), rands and US dollars (USD) or rands and Australian dollars (AUD). These payments are governed by Exchange Control Regulations and include the following key elements:

• SWIFT: International payments are made between banks using the electronic communication system Society for Worldwide Interbank Financial Telecommunication (SWIFT).
• Foreign exchange (FX): FX is exchanging one country's currency for another. The FX rate is the rate at which one currency is exchanged for another.
• BoP reporting / exchange control: All international payment transactions performed by South African residents are subject to the Exchange Control Regulations. The Financial Surveillance Department of the South African Reserve Bank (SARB) is responsible for the administration of exchange controls applicable on cross-border transactions. SARB has issued the Currency and Exchanges Manual for Authorised Dealers (CEMAD), which contains the permissions and conditions applicable to cross-border transactions that may be undertaken by authorised dealers (i.e. Standard Bank) on behalf of their clients (i.e. business entities and private individuals). Where Standard Bank is not empowered to approve the cross-border transaction, a suitably motivated application must be submitted to SARB for their consideration and approval. Our exchange control portal provides a helpful guide to BoP reporting.

FX currency solutions

Buying and selling currency, also referred to as foreign exchange, can be done in 2 ways: spot cover transactions or forward exchange contracts.

• Spot cover transactions involve an agreement between 2 parties to buy one currency against selling another currency at an agreed price, for settlement within 2 business days. The exchange rate at which the transaction is done is called the spot exchange rate.
• A forward exchange contract, or forward cover, is a contract between a bank and its customer whereby a rate of exchange is fixed immediately for the buying and selling of one currency for another, for delivery at an agreed future date. A forward exchange contract is an effective hedging tool, tantamount to an insurance policy, in that it protects traders and clients from unfavourable exchange rate fluctuations.

There are 3 types of FX contracts that are designed to suit the specific needs of your transaction:

• Fixed contracts: The rate of exchange is fixed and specified for a future date, known as the maturity date. The delivery of the foreign currency takes place on this date and at the exchange rate specified in the contract. This contract is suitable if you know the exact date on which a transaction will take place.
• Partially optional contracts: The terms of the contract are fixed from the establishment date until the option start date. After the option start date, the delivery of the foreign currency at the exchange rate specified in the contract can take place at any time before the maturity date. This contract would be suitable if you are certain that a transaction will not take place prior to the option start date, but you may need some flexibility thereafter.
• Fully optional contract: The delivery of the foreign currency can take place at the contract rate at any time during the existence of the contract. These contracts may be utilised either in whole or in part, at any time between the establishment date and the maturity date of the contract.