Accounting For Multi-Currency Ledgers

How to break the rules of money and get away with it

The biggest obstacle to multi-currency ledgers is a misunderstanding of what the balance rules really are.

Currencies can’t be balanced; you’re comparing apples to oranges. In theory you can balance them using comprehensive exchange rate lists, so that currencies can be comparable. In practice, this never works: it’s like trying to join database tables by timestamps. ASOF joins might work, but time series data is never aligned perfectly. Slight delays between cause and effect can make the reconciliation process unwieldy.

What we need is to reinterpret the balancing process when multiple currencies are in play.

I’ve hinted at this idea in Ledgers of Catan, but the reality is that virtually every company that deals with more than one currency compiles a list of exchange rates (or gets one from an external provider) and uses that as a “best effort” to reconcile numbers, accepting that a compensation will be needed at the end of the period.

They’re doing ASOF joins with their money.

I’m Alvaro Duran, and this is The Payments Engineer Playbook. You’re already subscribed to free newsletters that “teach” you how to get a job as a software engineer.

But you don’t want to get a job; you already have one. What you want is to learn how to do your job exceptionally well. Especially as a payments engineer, where stakes are sky high, and the margin for errors is razor thin.

In The Payments Engineer Playbook, we investigate the technology that transfers money. All to help you become a smarter, more skillful and more successful payments engineer. And we do that by cutting off one sliver of it and extracting insights from it.

In this article, I’m going to use a multi-currency wallet company as a practical example of how to balance multiple currencies without the strictness of the rule that “every transaction must be balanced” that every accountant uses in practice. This is dangerous territory: nobody does it.

But you’ll see that it can be done, and that it makes sense.