This is a rip-off

You will read a number of articles in the press this morning about the decline of the dollar (here and here, for example). And, sure enough, the BBC business website records the spot price, as of this moment, as 2.0355 dollars to the £. This is great news for those about to go on holiday to the States (even although it is less welcome news for the domestic tourist industry seeking to attract American tourists).

But I wish to draw your attention to the amount of dollars that you will actually get if you seek to exchange your sterling currency in preparation for your holiday. In particular, I would direct your attention to the Bank of Scotland's currency converter which this morning is offering a mere 1.9388 dollars to the £.

Accordingly, you may calculate that for every dollar that the Bank buys for the purpose of re-selling to the British tourist it is making some 9 cents on the deal. But this 9% profit of course assumes that the bank is able to buy at the spot rate. This is probably unreasonable as even the Bank has to pay for financial transactions, but nevertheless its costs will be substantially less than 9%; indeed, I would be extremely surprised if they exceeded 1%. Than you also need to consider that the bank is also exchanging pounds for dollars to the few American tourists (or golfers) that continue to come to our shores; although they do not publish the rates, you will not be surprised to hear that the Bank will charge the poor saps rather more than 2.10 dollars to the £. Thus the Bank wins both ways.

Ah, but you remind me, foreign currency trading is a chancy business - exchange rates can change from day to day. Well, that is true - but rates go up as well as down and, if you are a dirty great bank, than what you lose on the swings you will gain on the roundabouts.

This post is not intended as a specific criticism of the Bank of Scotland. I have no reason to believe that they are any worse than any of their competitors. But, collectively, this is an area of the banking industry where naked greed is ripping off the customer. And it is about time the Financial Services Authority did something about it.