Why is it important to bring up precision for currencies?

Suppose you want to convert a particular amount from JPY (Japanese Currency) to USD (US Currency). The precision for both currencies is set to 2. The amount you want to convert from JPY to USD is 223.45. The USD amount will be 1.47396. Since the precision is set to 2, the USD amount will be rounded to 1.48.

Now, convert USD 1.48 to JPY again. The amount you will see for JPY will be 224.34. This is happening due to the rounding off.

To avoid this unwanted error, remember that precise currency unit conversion entirely depends on precision.

To solve this issue, let’s set the precision to 4 for both currencies. Now, converting 223.4500 JPY will give a US amount of 1.4739 USD, or conversely, converting 1.4739 USD will give 223.4140 JPY.

That means when converting to a larger-scale currency unit from a smaller unit or vice versa, you must keep the precision for both currencies at least 4.

The base currency rate should always be 1. Other currencies will be converted relative to the base currency rate. For example, if USD is your base currency, the USD rate will be 1. Other currencies, such as GBP, will then be represented relative to the USD, so the GBP rate would be 0.79 (meaning 1 USD is equivalent to 0.79 GBP).