Contract Currency

Contract Currency is the currency agreed upon in a foreign trade contract for pricing and settlement, used to express commodity prices, payment amounts, and the creditor's rights and debts of both parties. Its use cases include: determining the total transaction amount, issuing letters of credit, and handling foreign exchange settlement and payment. Precautions: First, the contract currency must be consistent with the payment currency, otherwise exchange rate risks may arise; Second, currencies that are freely convertible and stable in value (such as USD, EUR) should be chosen, avoiding controlled or highly volatile currencies; Third, if the contract currency differs from the buyer's/seller's local currency, the exchange rate conversion method (such as fixed or floating exchange rate) must be specified. Distinction from other terms: Contract Currency is different from Settlement Currency, which is the currency used for actual payment, and the two may be the same or different; it is also different from Currency of Account, which is used for accounting records. In practice, exporters tend to choose hard currencies as the contract currency to avoid depreciation risks, while importers tend to do the opposite.