Revolut is charging a 0,5% exchange rate for transactions done over the weekend in order to protect the company from currency fluctuations once markets reopen on the following Monday. That is a little and fair fee.
However, I think Revolut should make an exception for the Bulgarian Lev BGN which is a currency under a fixed exchange rate with EUR since more than a decade due to Currency Board policy. The fixed rate is 1 EUR = 1,9558 BGN and it cannot fluctuate because BGN is pegged to the Euro as shown by ECB since more than 10 years: https://www.ecb.europa.eu/stats/exchange/eurofxref/html/eurofxref-graph-bgn.en.html
Revolut should create an exception to the weekend fee for BGN/EUR transactions by appliying no weekend extra charge or a charge of 0%. Charging the extra fee in this special case is unfair since between every Friday and Monday the exchange rate BGN/EUR will never fluctuate!
If an exception is applied Revolut has the potential to boom on the Bulgarian market as well as with the many tourists who visit regularly the country.
BGN is pegged to EUR. A pegged exchange rate system is a hybrid of fixed and floating exchange rate regimes. Typically, a country will “peg” its currency to a major currency such as USD, or in this case the EUR. Currencies are usually pegged to defend a particular rate, they may need to resort to central bank intervention, the imposition of tariffs or quotas, or the placement of restrictions on capital flow.
Typically, with a pegged exchange rate, an initial target exchange rate is set and the actual exchange rate will be allowed to fluctuate in a range around that initial target rate. Also, given changes in economic fundamentals, the target exchange rate may be modified.
In summary, as BGN/EUR is not a fixed rate, there is fluctuation risk, Revolut must apply the 0.5%weekend mark up as fluctuation protection.
The exchange rate for the EUR/BGN is set in law in Bulgaria voted in parliament. It has been in force for over 10 years now. The only way for this rate to change is through a vote in parliament.
Also, the rate is NOT defined as a corridor but is completely fixed with the national bank offering unlimited exchange between the two currencies at this rate.
I think your guys need to do some deeper research or maybe just shoot an email to the Bulgarian National Bank to understand the situation better.
So if there is a crisis the government can declare a state of emergency, override the law, and implement a new exchange rate. Hence pegged not fixed and a risk for
Pegged currencies are not “fixed” rates, and as there is no fixed rate, there is a fluctuation risk. You can always check in the rates. It’s fluctuating all the time.
Typically, with a pegged exchange rate, an initial target exchange rate is set and the actual exchange rate will be allowed to fluctuate in a range around that initial target rate.
A fixed exchange rate system maintains fixed exchange rates between currencies; those rates are referred to as official parity. A nation with fixed exchange rates must enforce those rates.
For instance, a dollar peg is when a country maintains its currency’s value at a fixed exchange rate to the U.S. dollar. The country’s central bank controls the value of its currency so that it rises and falls along with the dollar. The dollar’s value fluctuates because it’s on a floating exchange rate.
@anon33247966, can you cite an example of any time that EUR/BGN has moved by as much as 0.5% in the last 10 years? Your standard statement about pegged currencies is inappropriate to this particular case. It shows poor understanding and research on Revolut’s part. Doesn’t Revolut have FX business analysts who properly analyse this subject matter?
The point being made here is that 0.5% is the wrong protective margin; it should be much less, close to 0%.
Well, I see that Revolut is using lots of excuses (for making non little money out of us)… Sure, a revolution, a sudden crisis, and the rate could change (but it has not yet for BGN). But what? Others banks (I will not mention them, but I refrain using Revolut when in Bulgaria) have a true 0% no matter when. And how does that work? Well, at the payment, I get an authorization majored of roughly 1% (or maybe a bit less). The transaction is pending few days and when the account is really debited, the real rate is calculated at that day - in the case of Bulgaria, the real amount is always smaller than the authorisation and always exactly 1.9558… Why cannot Revolut do something similar?
BTW: there is never a true 0% regardless of the non EUR country with Revolut, as Revolut goes always on the safe side for any transaction. Have seen that with USD when paying the same stuff with another card…
Sorry for bringing this up, but the recently added BGN support to Revolut and the fact that the exchange rate to and from EUR was not better than local banks. So i’ve decided to do a research on my own. Apparently this is relatively old topic, so i’ll try to backup every statement with a reference to facts.
A fixed exchange rate , sometimes called a pegged exchange rate , is a type of exchange rate regime in which a currency’s value is fixed against either the value of another single currency, a basket of other currencies, or another measure of value, such as gold.
According to the same article, there are different exchange rate mechanisms, however i’ll put focus on 2 of them:
2.1 The first one is in relation to @danrevolut and @anon33247966 statements - what they talk about is the so called Pegged with a band exchange rate. In this case there is a fixed rate with allowed deviation.
A currency is said to be pegged within a band when the central bank specifies a central exchange rate with reference to a single currency, a cooperative arrangement, or a currency composite. It also specifies a percentage allowable deviation on both sides of this central rate.
2.2 The second one is the Currency Board. In this case one currency is fixed to another with a fixed exchange rate.
A currency board (also known as 'linked exchange rate system") effectively replaces the central bank through a legislation to fix the currency to that of another country. The domestic currency remains perpetually exchangeable for the reserve currency at the fixed exchange rate.
Why i’m mentioning these 2 - because BGN is under currency board, fixed to EUR.
It is NOT pegged with band to EUR, so @danrevolut and @anon33247966 statements are not correct.
Here are some proofs:
An exchange rate regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency (e.g. the euro) at a fixed exchange rate, combined with restrictions imposed upon the issuing authority to ensure the fulfilment of its legal obligation. This implies that domestic currency remains fully backed by foreign assets (e.g. denominated in euros), thus eliminating traditional central bank functions such as monetary control and lending of last resort. While leaving little scope for discretionary monetary policy, some flexibility may be afforded depending on the strictness of the board’s rules. Examples: Estonia, Lithuania, Bulgaria, Bosnia- Herzegovina.
