Change base currency

I would like to change our base currency. From my reading of the forum and my own experiments this is not a simple task. It looks like the most widely accepted advice is to create a new business and enter starting balances. I will try to explain my scenario, and would be grateful if anyone can advise if the new business approach is still the best idea or if I should be doing something else.

For several years we have been using the Zimbabwe Dollar (ZWL) as our base currency. For a time that was the main currency we were trading in. We purchase stock from South African suppliers who invoice us in South African Rands (ZAR), and we have also made purchases in British Pounds (GBP). We have also been making sales and purchases in US Dollars (USD). Over time the ratio of ZWL to USD transactions has shifted, and now nearly all our sales and local purchases are in USD. However, our accountant has consistently said that we have to report to our tax authority in ZWL.

Today, however, I submitted our figures to our accountant for our first quarterly income tax return (all in our base currency of ZWL), and pointed out that our ZWL income is almost negligible, less even than our monthly ZWL bank charges. She suggested that we report in USD instead. I asked if it would be permissible to change our base currency to USD, and she said it would (as long as we could find a way to do that in our accounting software).

There are two big reasons that I would like to change our base currency to USD:

  1. Many of the reports and much of the information on the Summary page are effectively meaningless to us, because they are in a currency which is experiencing hyperinflation. The foreign exchange gains and losses on our liabilities and credits obscure the real USD values that we are interested in.
  2. We purchase stock in foreign currency and mostly sell it in foreign currency. But if our purchase and sales prices are translated back to ZWL and there is some inflation between the purchase and sale dates, it greatly inflates our apparent profits in ZWL, and we end up paying much more in tax than we would if our costs of goods and our sales were kept in USD.

Since we already have all the relevant currencies and accounts set up in Manager, I naively thought that I could simply change the base currency, batch update our customers and suppliers with the correct currencies, and everything would recalculate and balance. Then I realised the exchange rates needed to be batch updated too, and with some work I have managed to do that. Now I see that a lot of the journal entries will need to be changed, but that becomes problematic because some of those were based on ZWL base currency values of goods, and changing those would change historical figures that we submitted in previous tax filings.

I did make a business backup before starting on any of these changes, so for now I will restore that and start looking at the option to create a new business and carry over the starting balances. We have more than 2,000 customers and more than 2,600 inventory items, so I am fearful that it would be a big task. But I’ll do some reading before I panic too much or start the process. Any input would be appreciated.

I think this is a valid request, however, whether this case is common enough to justify further development is something that has to be decided by the developer.

Moreover, this may sound as a straightforward request but this requires the ability to translate transactions and balances to different currencies on demand.

Also, I’m not sure how the new currencies functionality would play into this.

As you can see @GrahamvdR, this is a complicated issue.

How do you propose Manager to handle these situations? @GrahamvdR

In short you want to suppress foreign currency gains due to devaluation of your local currency. (As you are dealing in foreign currency). I highly doubt that tax authority is going to allow that. Still you need to check that first.
Also Its going to be messy as some expenses are going to be in local currency too so you have to report those in Foreign currency too as currency should be same throughout.
Another thing if you cant enter starting balances then you should wait for the export feature as currently its not working as intended.
Or maybe just extract the required data from Manager and work on it in spreadsheets for filing purposes.

Zimbabwe is a special case because it has dollarized the economy to reduce hyperinflation (see for example ). There are many countries at the brink especially in sub-Saharan Africa and considering accepting USD as a second official currency. This is also aimed at attracting Direct Foereign Investment. This is fine for macro-economics but not necessarily for businesses trading in this case ZWL.

So the request is genuine but I think that you can not go back in time but should indeed as @GrahamvdR already wrote and which seems in line with the accountant’s advice:

You need indeed to consult with the authorities that you can make that change asap.

Yes, far more so than I initially appreciated.

I’m not really sure, to be honest. I’m imagining a scenario in which the currencies in Manager are defined as entities, and the base currency can be selected from the list of currencies that a user has set up. The relationships between the currencies and accounts would change only as exchange rates change, regardless of which is selected to be the base currency. Most of the trouble I had when I started experimenting with changing the base currency in my current business stemmed from the fact that the base currency isn’t defined in the same way as foreign currencies are. It seems to be treated more like the absence of a currency.

For example, exchange rates are defined as base currency (whatever that may be) to specific foreign currency, not specific currency to another specific currency. So, I may have had an exchange rate entered of ZWL 1,000 : USD 1, which Manager interprets as base currency 1,000 : USD 1, which then becomes USD 1,000 : USD 1 when I change my base currency to USD. It’s not that hard to do a batch update and simply switch the currency labels and the “ExchangeRateIsInverse” tags, but if Manager knew that the relationship was a ratio between the specific ZWL currency and the specific USD currency, irrespective of what the base currency was, we could change the base currency without having to change any of the rates. They have already been defined – the information we need is already there in Manager.

Another example is with customer and supplier currency designations. We might have customers using three different currencies, Customer 1 (ZWL), Customer 2 (USD), and Customer 3 (ZAR). As it is now, Customer 1 is effectively Customer 1 (no currency), so when I change our base currency to USD, he becomes Customer 1 (USD). But Customers 2 and 3 are unaffected as they are linked to defined foreign currencies. If the base currency could be defined in the same way then Customer 1 (ZWL) could stay as Customer 1 (ZWL) when the base currency is changed to USD, and ZWL would now become a foreign currency.

However, as I have already demonstrated, I am well under-qualified to adequately assess the implications or feasibility of making these kinds of changes to Manager.

Yep. Unfortunately for us Zimbabweans this is one of many peculiarities of our financial system that the developer can’t be expected to have foreseen. I have seen other requests on the forum for the ability to change the base currency – or at least, the reporting currency – for the sake of feeding figures back to external funders in their currency rather than that of the country of operation, so perhaps there are other use cases for the ability to easily switch base currency.

Our authority requires us to report income in the currency of the transaction. ZWL income must be reported separately from USD income. For VAT returns we complete separate forms for each currency, and they have no bearing on each other. We have had situations in the past where we have had large USD VAT bills but are owed large ZWL refunds. They do not offset each other. We are not permitted to claim foreign exchange losses on foreign currency liabilities such as loans, so why should we be taxed on foreign exchange gains on our inventory?

If thats the case then it does makes sense.

Yup, I am from Zim too, facing the same problem. Most recently 91% of my sales are in USD, but still reporting in ZWL the exchange rate of which changes meaningfully almost daily

My account has suggested not changing since the situation is fluid and lord knows what will happen next. There is talk of introducing another new currency and a monetary policy statement that is overdue.

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The more I think about it, the more it seems like creating a new business is the way to go for changing the functional currency. However, maybe Manager could provide users with assistance in this process.

But just to be extra sure, we need to confirm that changing the functional currency is in fact a change in functional currency and not just a workaround to solve another problem.

I think @eko has provided good sources to support that but still @GrahamvdR and @Stewart, could you please confirm this.

I just want to be sure that this isn’t a recurring issue.

“It’s very difficult to make predictions about the future”

The issue is that in multiple-currency economies they try to minimize recording of FOREX Gains/Losses by allowing trade in these multiple currencies. When a traditional single base currency is used when the FOREX is volatile many companies will record losses even if buying and selling in another currency and thus operate net losses thereby reducing a countries fiscal income but also loss of appetite for foreign direct investment. Also inflation can be reduced by allowing trade in multiple currencies.

So in essence some mechanism in Manager should exist disallowing FOREX Gains and Losses for selected currencies. If you only have a base currency and never use others FOREX Gains and Losses would be absent. So if more than one currency can be treated similarly as long as not exchanging with each other, i.e. being completely compartmentalised then this would work.

However, this is extremely complicated, especially when dealing with the Balance Sheet side of things. Can you really ensure that for example land bought in ZWL would not be sold or serve as collateral for loans in USD?, or a Loan in USD not being repaid in ZWL. This would be extremely difficult to track.

I think that alway a choice in such circumstances for a single base currency needs to be made and that these are taxed accordingly by the authorities. So you either run your business in ZWL or in USD and wherever some of its trade is in the other currency that in that instance FOREX Gains/Losses apply.

So a simple rule of thumb could be that the currency that is used most by a business should always be the default if legally allowed in a country. Many countries are single currency but some, especially when volatile economic circumstances exist will allow selected other currencies as well.

As @Stewart has alluded, it is very difficult to predict what will happen with the future of our currencies. We could have a new one as soon as next month, and then we might all have to change our base currency to that if the tax authority requires us to report in it.

Currently our tax authority requires us to report in the currency of the transaction, so I export figures into a spreadsheet and convert between currencies there. Now that nearly all our transactions are in USD it would be much easier if that was our base currency, and would also help with things like our cost of goods sold. Also, it would be much more useful for us if our Summary page and reports showed USD figures. I have thought about having two separate businesses in Manager, one in ZWL and another in USD, but I don’t think that would work since our inventory would need to be shared between them.

So, I can’t say if we will run into this issue again, but I hope I have shown that it is “not a workaround to solve another problem.”

Yes, if there was a way to completely separate our transactions and reporting by currency that might solve most of our challenges. But I know that is easier said than done…

In that case, the request you made about currency relationships makes a lot of sense in theory but it’s going to force all users to bear the overhead of configuring foreign currencies before selecting a base currency. Personally, I like your solution but I think it’s very ambitious at this point so I will leave this to the developer to decide on it.

Alternatively, reporting could be improved to show each currency separately, I think that’s a valid request as well. Though, I think this also implies that the Base Currency functions like a Foreign Currency as well … so we’re back to square 1.

I think @lubos could take a look at this.

Just for, I think your case is another valid case to support Split Business File function that has been proposed before since it will help you reduce the amount of work needed to replicate the current setup.

Anyway, your best option right now is to create a backup and Batch delete your transactions and use USD as your Base Currency.

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This could be it

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Hopefully there could be a way to avoid making more work for most users. Perhaps by default the base currency could be a single defined currency, with the option to add more currencies for those who need them?

Yes. My head was spinning just from trying to understand what I was doing in my experiments.

Maybe we need to move away from the idea of “base currency” and “foreign currencies”, and instead just have “currencies” (or just a single currency for those who only use one), with the ability to select a “reporting currency” at will.

I’m not aware of this idea. I’ll do some searching and reading.

Thanks, I’ll look at doing this.

Hi Graham

I was running ZWL accounts as the base currency through Pastel last year; and was advised by two different accountants to separate and run AS TWO SEPARATE COMPANIES the ZWL and USD accounts - which I am now doing in Manager.

In my understanding, ZIMRA are giving us this option and an exchange rate to use for each return.

I hope that helps.

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Thanks for that feedback @RKzw. It’s always good to hear what advice accountants are giving. Unfortunately I don’t see how I can set up our business as two separate Manager businesses with the inventory that we need to use for both, but it’s something to consider as I plan how to proceed, and hopefully something that @lubos will factor in to his plans for the software too.

How would you account for the cost of goods for sale if you mix the two inventories - those purchased in ZWL and those purchased in USD?

We actually purchase the inventory in ZAR. We deposit USD into our bank account and the bank pays the ZAR invoices. I’m not really sure how the currencies would work. But I think the bigger issue could be more about which business owns the inventory, and how to show the correct stock levels in both business even though each item would only be sold by one of the two businesses.

However, the way things are going it might be fairly easy for us to just put all the inventory into the USD business and insist that customers pay for goods in USD, although I don’t think that is legal – customers have the right to pay in ZWL if they so choose.

For these reasons I haven’t yet seriously considered splitting the business into two. And now I am hearing that we will be getting a new currency this Friday…

We now have a new currency (ZiG). Details are contained in the 2024 Monetary Policy Statement available from our Reserve Bank’s website.

A few points:

The Zimbabwe Gold (ZiG) replaces the Zimbabwe Dollar (ZWL). All bank balances previously denominated in ZWL have been converted to ZiG at a market-determined rate. All credits and liabilities must be similarly converted. There is a window during which ZWL cash can be exchanged for ZiG at the banks.

As of today, 8 April, the exchange rates provided by the Reserve Bank use the ZiG as the base currency, and the ZWL is not listed.

I haven’t yet confirmed with my accountant if we can still use USD as our base currency, or if we will be reporting in individual currencies. But we certainly won’t be reporting in ZWL, so one way or another I will have to change our base currency.

At least 50% of our quarterly income tax payments will be payable in ZiG, which suggests that there will be a degree of freedom to change between currencies that we haven’t seen for a while (previously we had to report and pay taxes in the currency of the transaction, so ZWL and USD taxes were handled distinctly from each other).

So, although I have some more research to do, it looks to me like I will have to start a new business in Manager and create opening balances to change over to the new currency.

That would be the easiest and keep the old one available for reference and auditing.