I’ve never been confused about exchange rates being master data. At my first company, we had something called the USC – US Control Dollar. Set once a year. Used for all cost and profit accounting. Completely under our control.
That early experience gave me an instinct about data authority that I could never quite articulate. It led to countless frustrating conversations where I KNEW the answer but couldn’t explain WHY.
Last week, thinking about a data model, I started thinking about this distinction more deeply, what was it that I knew but could not articulate. Then on a hike along the Thames Path, it finally clicked.
The Moment of Clarity
The USC taught me something fundamental: we had complete authority over that rate. It didn’t matter that exchange rates “came from outside” – WE decided:
- When to set it (once a year)
- What source to use
- How to apply it
That’s master data. We had the authority.
But try explaining that intuition when someone insists “external source = reference data.” You end up in circular debates.
Walking past fields (and yes, horses), thinking about data classifications, I finally found the words for what I’d always known:
It’s about authority. Who has the power to define what something means?
The Authority Test
Once I had the words, I tested it on everything I could think of. Here’s the test:
Can you redefine it and do you need others to accept your definition?
- If you can redefine it and only you need to accept it → Master Data
- If you can’t redefine it OR others must accept it → Reference Data
No exceptions yet.
Why This Matters Beyond Theory
Every migration, every system design, the same circular arguments:
“Exchange rates – that’s reference data because we’re told it from outside.”
“No, this is reference data because it’s in a dropdown table.”
“Tax rates changed and we had to update loads of systems, so it must be master data.”
No. Tax rates are reference data – the government has authority. The pain of updating doesn’t change who owns the definition.
An old one but a favorite: “We need a governance process for adding currencies.”
Really? When did we last add a currency? The Euro was a project that took years. New currencies don’t just appear on Tuesday afternoons. And for adding a currency to a drop down table does it need a governance process?
The Confusion Patterns
Through testing, I found the same confusion patterns repeatedly:
“We maintain it, so it’s master data”
No. You maintain local copies of country codes too. Maintenance isn’t authority.
“It changes frequently, so it’s master data”
No. Tax rates change all the time. The government still has authority.
“It’s a small lookup list, so it’s reference data”
No. Your cost center list might be tiny and static. You still have complete authority over it.
“It comes from outside, so it’s reference data”
Not always. Customer names might come from external sources, but once they’re in your system, you have authority to correct spellings, update addresses, mark them inactive. That’s master data you’re maintaining.
But Dun & Bradstreet numbers? You can’t change those – they’re reference data. D&B has the authority.
The Choice Point
Sometimes you get to choose:
- Create your own party types → Master data (your authority)
- Adopt ACORD standards → Reference data (their authority)
- Build your own product hierarchy → Master data
- Use GS1 standards → Reference data
The framework helps you understand what you’re choosing: control and flexibility (master) versus interoperability and standardization (reference).
Testing the Edges
I always test frameworks on something completely unrelated to see if they’re robust. This time: horses.
I rode for 16 years, so I know this domain:
- Racing names? Jockey Club has authority → Reference data
- Stable nicknames? You choose → Master data
- Breed standards? Registry decides → Reference data
The framework held. If your data architecture principle works on horses, it’s probably universal.
Why Exchange Rates Break People’s Brains
“But exchange rates come from external sources!”
Yes. But there’s no single authority. You choose:
- Which source (Reuters vs Bloomberg)
- What timing (spot vs close)
- What adjustments to apply
You have authority over YOUR rate. That makes it master data.
Try telling banks that USD now means something else. You can’t. That’s reference data.
The Real Implications
This isn’t academic. I’ve seen migrations fail because people put exchange rates in reference data stores that couldn’t handle daily updates. I’ve seen programs waste time discussing how to manage country codes that should have been in a simple reference table.
When you understand authority, you know:
- What needs real-time integration (master data under your control)
- What needs governance (what you have authority over)
- What needs monitoring (reference data you must comply with)
- What can be cached (reference data that rarely changes)
The Simple Pattern
Every complex system hides a simple pattern. This one is about authority and control boundaries.
Reference data is what the world gives you.
Master data is what you create to run your business.
Or put another way:
- Ignore reference data → you break compliance, law, or interoperability
- Mismanage master data → you break your business processes
The Challenge
This framework is simple. Maybe too simple. But complex systems often have a simple pattern at their core.
So here’s my challenge: Find me a case where this breaks.
Where does authority become ambiguous? Where does the test fail?
Because if we can find where it breaks, we can make it stronger. And if we can’t, then maybe we’ve finally found the simple pattern that was hiding in plain sight all along.
Think you’ve found an edge case? Direct message me on LinkedIn.
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