how xenocurrencies work
the term xenocurrency was developed in 1974 by the austrian american economist fritz machlup who served as president of the international economic association from 1971 to 1974 12 machlup used the phrase to refer to deposits and loans denominated in currencies other than that of the bank s home country xenocurrency investments can be risky since they are complicated by many factors including currency fluctuations and conversion risks risks come when deposits are in a rising domestic currency market where the foreign investment may result in lower returns when converting the funds back into the home currency however the opposite is valid for investments in declining domestic currency collectively these risks are known as foreign currency effects political risks can also be a factor during a crisis a country s government might place restrictions on the amount of xenocurrency that travelers may take out of the country for instance after the u s withdrew from the iran nuclear deal in may 2018 3 the iranian rial plunged to a record low against the u s dollar 4real world example of a xenocurrencyexamples of xenocurrencies include the indian rupee inr traded in the united states or the japanese yen jpy deposited into a european bank the u s dollar usd is likewise often used as xenocurrency in mexico especially for large transactions in real estate and other business activities today the term xenocurrency is frequently used synonymously with euro currency similarly the phrase xeno market is often used interchangeably with the term eurocurrency market eurocurrency market refers to a money market that trades in xenocurrency banks multinational corporations mutual funds and hedge funds use the eurocurrency market these entities use the market because they wish to circumvent regulatory requirements tax laws and interest rate caps often present in domestic banking particularly in the united states investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment investors investing involves risk including the possible loss of principal 