Foreign currency in loan obligation

Abstract

The article is devoted to the study of problems associated with the use of foreign currency in loan agreements between physical persons. It is concluded that two situations should be distinguished: first, when a foreign currency constitutes the subject of an obligation; second, when the subject of an obligation is a national currency, and an indication of the equivalent in foreign currency should be regarded as an implied currency clause.

 In order conclude which exact situation is at hand in a particular case the court has to find out in which currency the loan was given to the borrower. As long as the borrower gets the loan in foreign currency, he is obliged to return the money in the same foreign currency.

 But whenever the court finds out that the loan in fact was given in national currency the question arises: how to treat the fact that in the obligatory writing two currencies are mentioned. First option: the mention of foreign currency can be disregarded as being made inter alia. Second option: it can be treated as an implied monetary clause, pursuant to which the sum of money to be returned in national currency cannot be less than agreed sum in foreign currency converted according the rate of exchange prevailing at the day of payment. It is concluded that the second option is more plausible.

 Special attention is payed to the problem of defining the exact rate of exchange that has to be applied in a case when the borrower fails to perform the obligation. It is concluded that existing rule (under which the rate of exchange prevailing at the day of court decision applies) is not optimal, since whenever the foreign currency depreciates this rule in fact encourage the borrower to delay payment. Therefore it is proposed to set the rule under which in case of non-performance the creditor could choose between the two rates of exchange: prevailing at the date of due payment or prevailing at the date of actual payment.