Currency Stipulation

a condition included in international credit, payment, or other agreements and also in foreign trade contracts to insure the creditor and exporter against the risk of depreciation (decline in the rate of exchange) of a currency. Creditors and exporters may incur considerable currency losses if, between the date of the conclusion of an agreement or contract (fixing the price of the commodity or the amount advanced) and the date of payment, the rate of exchange of the currency in which payments have to be made declines. There are two main kinds of currency stipulations: the cost of the commodity or the amount advanced, as stipulated in the agreement, may be fixed in a stable (hard) currency, so that if the currency in which the payment is to be made depreciates (that is, the rate of exchange declines) the amount to be paid in that currency will be proportionately increased; or, a clause included in the agreement may provide that the change in the price of the commodity or the amount advanced shall be in the same proportion as that between the change in the rate of the currency of payment agreed upon by the parties and the currency specified in the agreement. Currency stipulations may also be used in import contracts to safeguard the interests of the importer when a rise in the rate of exchange of the currency of the contract is anticipated. According to which currency (for instance, ruble, United States dollar, pound sterling) is decided on in the agreement, the stipulation is described as a ruble stipulation, United States dollar stipulation, and so on.