The moving average rate procedure is a proven procedure within development cooperation to convert locally used currency of the projects (voucher currency) to the currency used at the head office (company currency).
Contents
This procedure prevents any profits or losses resulting from fluctuating exchange rates. It allows to fully translate the countervalue of all funds given to the project to costs.
Background
The moving average rate procedure has been developed in the 80s on behalf of the German Federal Ministry of Economic Cooperation and Development (BMZ) to properly account for the funds made available to the public implementing agency GIZ.
By and by the procedure has been adopted by other aid agencies and is meanwhile a widespread instrument for exchange rates conversions. Many other donors such as the German Federal Foreign Office, the Worlds Food Programme or the Humanitarian Aid and Civil Protection department of the European Commission (ECHO) also accept the procedure in accounting for their funds.
Calculation
The calculation is based on the total balances in company and voucher currency and the newly received funds. The following formula is used:
Example with EUR as company currency:
Application
WINPACCS has the moving average rate procedure inbuilt. Many aid agencies still do this calculation using a spreadsheet.