Do Androids dream of Electric Spreadsheets? A Beginner’s Guide to AI in Treasury – Part I

| 24-02-2020 | treasuryXL | Cashforce |

Do Androids Dream of Electric Sheep by Philip K. Dick, adapted to the movie Blade Runner in 1984 (yes, it’s that old), ponders the question whether technology can replace humanity in every aspect of life. Whether advanced technology could attain a comprehensive cognitive interpretation of dreaming is a philosophical conundrum that I’ll leave for the brightest among us. However, while this doomsday scenario in Hollywood movies in which robots rise against their human creators is far from happening, the reality is that a computer has already surpassed the level of strategic thinking of a human being. This rise of artificial intelligence carries the potential to disrupt any industry, including treasury, but often leaves you wondering if the hype lives up to reality.

Abstract blue lights background. Vector illustration, contains transparencies, gradients and effects.

[Spoiler alert] In the dystopian world of Blade Runner, the protagonist called Deckard, a bounty hunter or “blade runner” hunts outlawed androids or “replicants” while feeling no remorse due to them being machines. An interpretation endorsed by the iconic unicorn dream sequence hints that his human memories might have been artificially implanted, implying he might be an android himself. Is this the course artificial intelligence will eventually take us to?

Man vs. Machine – A Boardgame Evolution 

In 1997 IBM’s computer Deep Blue beat Gary Kasparov, the world champion at that time, in a game of chess. Deep Blue was able to analyze thousands of high-level chess games that were stacked into its system. When proposed with a move, it would choose the best outcome out of different scenarios. By basic number-crunching it was picking out the move that would lead to the best position on the board. This milestone was heralded as a boon for technology and viewed as almost exclusively disruptive for many industries.

Go, an abstract strategy board game invented in China, has simpler rules than chess, but many more moves at each point in the game. Just to give you an idea, the size of possible outcomes is larger than the number of atoms in the universe. Looking too far ahead in the game, or considering all possible moves and counter-moves is therefore nearly impossible. In 2016, distinguished Go player Lee Sedol was put up for the task to beat the next high-tech invention, named AlphaGo. Created by the sharp minds at Google’s DeepMind, its intelligence is based on its ability to learn from millions of Go positions and moves from previous games. Once again, machine triumphed over its human equivalent when it came to strategic thinking.

AlphaZero, released in 2017, is a version of the same program that takes it a step further. It can play chess, Go and other games and is only given the rules of the game, nothing more. By playing millions of games against itself without any previous knowledge of plays, tactics or strategy, it was able to master these games on its own. So how much time went by from the moment they launched AlphaZero to the moment where it achieved a superhuman level of playing Go? Less than 24 hours. Even more baffling is, while humans have been playing it for the past 2500 years, it came up with brand-new strategies that have never been seen before. While it is ‘only’ about fun and games, this sheds a new light on technological concepts that seemed at first like far-out fiction.

Artificial intelligence systems can dazzle us with their game-playing skills and lately it seems like every week there is a baffling breakthrough in the field with mind blowing results. It is almost unthinkable that the finance sector would be untouched by the rise of AI, any sector for that matter. Nonetheless, with the present hype around it, many of the used concepts and terminology seem to be used carelessly, which makes it hollowed and deprived of any meaning. You have probably heard of the terms “machine learning” and “deep learning”, sometimes used interchangeably with artificial intelligence. As a result, the difference between these concepts becomes very unclear. To understand this distinction and why AI will disrupt current technologies, we have to understand where it comes from.

Let there be l(A)ight – A brief History

Simply put, AI involves machines that can perform tasks that are similar to human tasks. A very broad definition which can go from simple solutions such as automated bank tellers to powerful and complex applications such as androids, which inspired the movie Blade Runner.

Surprisingly, the script on AI arises from a time when James Dean was rocking the screen and Elvis was celebrating his first “Blue Christmas”. While the statistical framework is based on the writings of French Mathematician Legendre from 1805, most AI models are based on technology from the 50’s.
1950, the world-famous Turing test is created by Alan Turing (who will soon be commemorated on the new £50 note). The test reflects on the question whether artificial intelligence is able to appear indistinguishable from a human in terms of thought and behaviour.
1951, the first artificial neural network was created by a team of computer scientists: SNARC (Stochastic Neural Analog Reinforcement Computer). They attempted to replicate the network of nerve cells in a brain. It imitated the behaviour of a rat searching for food in a maze. This was largely an academic enterprise.

SNARC computer

In the same way, 1952 rouses the birth of the first computer learning program or machine learning by Arthur Samuel. The program played checkers and improved at the game the more it played. Machine learning, a subset of AI, is defined as the ability to learn without being explicitly programmed what to “think”. It enables computers to learn from their own mistakes and modify to an altering environment. Machine learning also includes other technologies such as deep learning and artificial neural networks. Nowadays this technology can, among other things, use data and statistical analyses to predict possible future scenarios such as for Cash flow forecasting.
The Dartmouth Summer Research Project was a 1956 summer workshop and widely considered to be the starting point of artificial intelligence as a scientific field. With this uprising of technology there came a lot of excitement for the potential of automation in finance and treasury. It was believed to help accountants and bankers speed up their work. But if wishes were horses, beggars would ride. And in this case, androids would be riding along with them. Unfortunately, a reduced interest in the field and many failed projects leave artificial intelligence stranded in what is called the ‘AI winter’.

Blade runnerinfographic artifical intelligence

Luckily humans are not one trick ponies, so our story doesn’t end here. After a period of economic & technological proliferation in the 1980’s, Expert Systems found their way into the world of finance. These are computer systems that are capable of decision-making on the level of a human expert having been designed to solve complex problems. But when push came to shove, the technology wasn’t mature enough and didn’t meet client’s demands.

In 1991 the World Wide Web was opened to the public. It’s the start of the data revolution. In 2005, it reached 1 billion people and today more than half of the world’s population is connected to the internet.
Coming back to our first example, it was in this period (1997) that Deep Blue challenged the capacity of the human brain and proved it could think more strategically than a human being.
Today AI is demanding so much computing power that companies are increasingly turning to the cloud to rent hardware through Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) offerings. That’s why around 2006, players such as Amazon Web Services (AWS) opened up its cloud environment to broaden the capacity of AI even further.

In the same year, Geoffrey Hinton coined the term “deep learning”, helping the progress of operating AI applications in the real world. This brought the world one step closer to bridging the fuzzy gap between humans and androids.
2015, AlphaGo is introduced to the world. Two years later in 2017, its successor AlphaZero sees the light of day.
2019, the first picture of the black hole M87 the constellation Virgo is rendered through artificial intelligence opening the door to new knowledge in the universe. The path of AI took us a giant leap forward, but we’re far from the finishing line. Roughly 90% of the universe exists of dark matter or dark energy that leaves us in confusion. Accordingly, a similar percentage of untapped dark data, the fundamental building block to understand a company’s future, isn’t being used.

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Central bank digital currencies: towards a global approach

| 21-2-2020 | Carlo de Meijer | treasuryXL

In one of my earlier blogs, I mentioned that Facebook’s efforts to launch its Libra cryptocurrency triggered intense debates over who would control money in the future. It has also forced Central Banks to think about and explore their own digital currency.

According to recent research, at least 18 central banks are currently developing digital currencies. But up till recent that was just done on an individual stand-alone basis. The most effective way to counter private digital currencies however is via a collaborative approach.

This year we are seeing more collaboration between central banks, aimed to think about the impact of such a digital currency for monetary policy and financial stability and what could be the optimal design of such a currency.


Why a central bank digital currency?

There are various reasons why central banks may introduce their own digital currency. First of all as a defensive move. The rise of crypto currencies like the Libra could create tensions among central banks and regulators as these can make it difficult for central banks to manage their foreign exchange controls and implement a sound monetary policy.

Another reason is the optimisation perspective. Current central bank operated money systems work well, but could certainly benefit from improvements e.g. in settlement. They see this technology as ‘optimizing or improving the rough edges on a system which is already great, and which they have no desire to fundamentally change’.

Central Bank Digital Currencies versus Crypto currencies

While central banks recognize digital money may be an improvement over physical money, a central bank designed digital currency will not resemble a decentralized cryptocurrency.

Though both CBDCs and cryptocurrencies, to a varying degree, are based on blockchain technology, CBDCs are – fundamentally – different to cryptocurrencies. CBDCs are traditional money, but in digital form, issued and governed by a country’s central bank, whereas cryptocurrencies are decentralised. The Central Bank consensus is that decentralization is not a desirable property in a CBDC as it could aid tax avoidance and enable criminal payment systems. Cryptocurrencies are neither recognised as legal tender – which CBDCs, by definition, would be. And unlike central bank money, both traditional and digital, the value of cryptocurrencies is determined entirely by the market, and not influenced by factors such as monetary policy or trade surpluses.

BIS Survey

Early this year the Bank of International Settlement (BIS) published a paper that presents the results of a survey that asked central banks how their plans are developing in the area of central bank digital currency (CBDC).

It shows that a wide variety of motivations drive extensive central bank research and experimentation on CBDCs. According to the survey about 80% of the central banks are engaging in some sort of work in this area, with half looking at both wholesale and general purpose CBDCs. About 40% of central banks have progressed from conceptual research to experiments or proofs-of-concept while another 10% have developed pilot projects.

Every central bank that has progressed to development or a pilot project is an institution in an emerging market economy. Globally, emerging market economies are moving from conceptual research to intensive practical development, driven by stronger motivations than those of advanced economy central banks.

Nonetheless, plans of central banks in advanced economies appear to be accelerating compared with earlier expectations.

Central banks need to collaborate

The BIS survey also showed the urgent need for collaboration by central banks on CBDCs. To find an optimal design of a central bank digital currency cooperation between these institutions is a must. Collaboration through international vehicles, such as the BIS Innovation Hub, will be necessary to avoid any unforeseen international consequences.

The collaboration on understanding the impact of CBDCs need to intensify. The survey shows that more central banks should be looking at the risks outside the financial system while also exploring ways to improve the system with CBDCs.

Collaboration initiatives

Since this year we see a shift from more stand-alone projects towards working with other central banks in the CBDC field. It is seen as critically important for central banks worldwide to join the discussions and take part in a more global coordinated approach for CBDCs.

1. Group of six leading central banks

Last month the Bank of International Settlements (BIS) announced that it had created a group involving six leading central banks including Bank of Canada, Bank of England, Bank of Japan, Central Bank of Sweden, Swiss national Bank, as well as the ECB.

The group will be co-chaired by the Head of BIS’ Innovation Hub, Benoît Cœuré, and the Deputy Governor of the Bank of England and chair of the Committee on Payments and Market Infrastructure, Jon Cunliffe. Senior representatives of other bank members will also be included.

These central banks have joined forces to explore digital currencies, assess the potential for central bank digital currency (CBDC) in their respective jurisdictions, share experiences as they assess the potential cases for CBDC in their home jurisdictions and look at ‘cases for central bank digital currency’. The members will thereby work closely with the Committee on Payments and Market Infrastructures (CPMI), an international standard-setter for payments and clearing, and the Financial Stability Board (FSB).

“The latest decision [by the six central banks] is not just about sharing information. It’s also an effort to keep something like Libra in check.” “Something like Libra would make transactions costs much cheaper. Major central banks need to appeal that they, too, are making efforts to make settlement more efficient with better use of digital technology.” Yamaoka, Bank of Japan president

2. World Economic Forum CBDC Toolkit

The World Economic Forum (WFO) and a community of over 40 central banks, international organizations, academic researchers and financial institutions have created a framework to help central banks evaluate, design and potentially deploy CBDC. The framework, dubbed the “CBDC Policy‑Maker Toolkit”, is intended to help accelerate critical and rigorous analysis of CBDC.

The framework provides a guide for central banks around the world. The toolkit provides information on retail, wholesale, cross-border and “hybrid” CBDCs, for all sizes of emerging and developed countries.

It is aimed to help policy‑makers within central banks confidently evaluate whether CBDC is the right fit for their economy and guide them through the evaluation, design and deployment process. It describes a step‑by‑step evaluation process for CBDCs, including potential benefits and challenges, could help “identify trade-offs between benefits from the use cases and their associated risks across different dimensions.” For those who are already researching, it helps them “make progress quickly”.

“Given the critical roles central banks play in the global economy, any central bank digital currency implementation, including potentially with blockchain technology, will have a profound impact domestically and internationally.” “The toolkit can serve as a springboard as central banks progress with their CBDC investigation and development.” “The intricacies of implementing CBDC are complex and the implications are wide‑reaching. As a result, policy‑makers may find themselves in uncharted waters when attempting to evaluate the potential benefits and trade‑offs.” Sheila Warren, Head of Blockchain and Distributed Ledger Technology at the World Economic Forum

3. European Central Bank Task Force

At the end of 2019 the ECB created an expert task force to look into and analyze the feasibility and potential outcome of establishing a central bank digital currency (CBDC). Central banks should consider the merits, which may include public goals such as financial inclusion, consumer protection and payment privacy.

The group is a result of efforts by Christine Lagarde, the new ECB president, who has pushed the European Central Bank to dedicate significant resources to studying the merits of CBDC. She explained that this task force was aimed at ensuring the European Central Bank plays an active role in fostering cheap and speedy payment transactions, likewise exploring the benefits of having a CBDC. With this development, Europe would join the rest of the world in their pursuit of having a central CBDC.

“In terms of the road ahead, the ECB will continue to assess the costs and benefits of issuing a central bank digital currency (CBDC) that would ensure that the general public remains able to use central bank money even if the use of physical cash eventually declines”. Christine Lagarde

The task force will work closely with the EU national central banks to study the feasibility of a euro area CBDC in various forms, covering all the practical aspects, including how to minimise possible unintended side-effects.

Lagarde agrees that pursuing a CBDC is a legitimate goal for the ECB but does not rule out competitive solutions that may come from private companies pursuing platforms that utilize digital currencies to expedite cross-border and domestic transactions.

“We are looking closely into the feasibility and merits of a CBDC, also because it could have major implications for the financial sector and for the transmission of monetary policy”. Lagarde

Optimal CBDC design

Interesting question is: what is the most optimal CBDC design? Certainly, a digital central bank currency has the potential to impact the financial system in a significant way. But for an optimal design one need a good cost-benefit balance and mitigate – as far as possible – potential unintended side-effects.

In this blog the focus is on so-called general purpose CBDCs accessible to the broad public. Wholesale CBDC are seen as of more limited scope and does not really question the established structure of the monetary base. General purpose CBDC could be implemented in two alternative ways: they could be offered in the form of deposit accounts with the central bank to all households and corporates. Alternatively, the central bank could offer a digital token currency that would circulate in a decentralized way without central ledger.

But for security and privacy reasons this latter alternative is not the favourite of central banks especially in the well developed countries.

Opportunities and challenges of CBDCs

Central banks have started to analyze intensively the benefits and negatives of introducing central bank digital currencies (CBDC). They are especially looking at what is their potential impact on monetary policy, financial stability and the financial system. It is imperative that central banks thereby proceed cautiously, with a rigorous analysis of the opportunities and challenges posed.

Opportunities    

In various studies a number of quite diverse benefits of CBDCs have been put forward.

More efficient payments

CBDCs could address problems like inefficient payments that cryptocurrencies seek to solve, while maintaining state control over money. Central banks think CBDCs could make payments systems more efficient, reducing transfer and settlement times and thus promoting economic growth. Other advantages could include making available efficient, secure and modern central bank money to everyone, and strengthening the resilience, availability and accessibility of retail payments. This is especial true for the countries with underdeveloped banking systems, and/or without a secure and efficient payment system.

More security

A widely adopted CBDC would allow better control of illicit payment and saving activities, money laundering, and terrorist financing. It would thus place users at less risk of violent crimes that target holders of cash, and potentially reduce security and insurance costs associated with keeping cash on business premises. This however would requires the discontinuation of banknotes (or at least of larger denominations). Obviously, this motivation of CBDC would not apply if CBDC circulates as anonymous token money even for high amounts.

Improve overall effectiveness monetary policy

CBDCs could provide significant competition for traditional monetary instruments. Such a competition would present monetary policy with challenges but also with opportunities. Central bankers fear that Libra and other crypto currencies could quickly erode sovereignty over monetary policy. CBDCs could counter the rise of cryptocurrencies issued by the private sector.

Next to that CBDCs could allow relaxing the so-called zero-lower bound constraint on nominal interest rates as negative interest rates can be applied to CBDC. If digital cash is used to completely replace physical cash, this could allow interest rates to be pushed below the zero-lower bound, which could promote macro-economic stability. CBDC could also widen the range of options for monetary policy. Variable interest rates on CBDC would provide for a new, non-redundant monetary policy instrument that would allow improving the overall effectiveness of monetary policy.

Improve financial stability

CBDCs could also improve financial stability and macroeconomic stability and reduce so-called “moral hazard of banks“ by downscaling the role of the banking system in money creation via sight deposits, as CBDC would take over to large or full extent sight deposit issuance by banks. By providing competition for bank deposits, the adoption of a CBDC could limit the practice of fractional reserve banking, thereby strengthening financial stability.

Safer financial system

A CBDC could have profound implications for the banking sector, either positive or negative. CBDC can also make the financial system safer as. Under a central bank digital currency scheme, citizens and business would be permitted to open and hold interest paid accounts with the central bank. It would allow individuals, private sector companies, and non-bank financial institutions to settle directly in central bank money (rather than bank deposits). A CBDC, therefore, would compete directly with commercial bank deposits, likely inducing a partial shift of deposits away from commercial banks towards the central bank.

This may significantly reduce the concentration of liquidity and credit risk in payment systems, resulting in a safer financial system, with less scope for impairment in monetary policy transmission.

Potential costs of CBDCs

Most of the proposed advantages of CBDCs however are not that straight forward and are mostly subject to controversial debate. Overall, one may conclude from reviewing the arguments in favor of CBDC that the merits of CBDC i.e. contribute to an efficient, resilient, accessible and contestable payment system seem relatively uncontroversial, without this per se being sufficient to justify CBDC. But that is not the case for other arguments.

Disintermediation of the banking sector

It remains uncertain to what extent and in what direction a sovereign digital currency would impact the banking sector and financial stability. Different outcomes are conceivable, with different policy implications, but with no clear indication as to which is most likely. Some warn against the structural disintermediation of banks that could be caused by CBDC. This disintermediation has been considered as one of the major drawbacks and risks of CBDC.

De-funding of the banking sector

Too widespread a substitution of bank deposits by CBDC could lead to a significant de-funding of the banking sector. If CBDCs replace private deposits, that could erode commercial banks’ credit channels, having negative spill over effects on credit creation and economic activity. Another danger associated with CBDC, is that it would facilitate runs out of bank deposits into central bank money in times of financial crisis situations.

Impact on financial stability

A substitution of bank deposits by CBDCs could also weigh on growth prospects if it compromised bank lending activity. First, even if banks were both willing and able to attract alternative funding, the adoption of a CBDC as a very easily safe asset could make credit supply more volatile, facilitating a flight to safety. It might act as a vehicle for bank runs, undermining financial stability. Second, the de-funding risks of banks associated with a CBDC might push the private sector into shadow banking activities.

Forward looking: are CBDCs close to becoming reality?

There is growing consensus that central bank digital currencies have a big chance to become a reality. But it is still guessing when and how it will look like. Most CBDC projects are still in very early or conceptual stages.

While the creation of the group of six leading central banks in the developed economies demonstrates that central banks are moving forward in their research on the costs and benefits of digital currencies at the global level, present findings are not (yet) enough to justify a central bank digital currency. It is still too early to say what would be the optimal design for CBDCs.

There are still many open questions such as, what will be the effect on monetary policy? How will it impact financial stability? And what about the position of financial institutions?

For that there are still too many controversies in the various arguments pro and con. It remains uncertain to what extent and how CBDCs would impact the banking sector and what that means for financial stability. It is also unclear how CBDCs really impact monetary policy.

More research should be devoted to better understanding and assessing the pros and the cons associated with the use of such a CBDC. Only than balanced decisions can be made.

 

 

Carlo de Meijer

Economist and researcher

 

Huge number of countries with an array of recession forecasts

20-02-2020 | treasuryXL | XE |

Widespread weakness continues to weigh on a huge number of countries with an array of recession forecasts in the wake of global weakness due to pandemic, trade wars and trade deleveraging.

Hong Kong having slipped into recession last year seems as if this is likely to be repeated in the wake of the Coronavirus and months of political unrest. Hong Kong GDP already contracted at an alarming 3.2% in the middle of 2019 and key signals from economic data are already pointing at a continued slow-down of their fiscal situation. Japan is widely believed to enter a recessive environment as well suffering a huge typhoon and then a big tax increase and straight away afterwards the virus also affected their growth. There is a chance the UK could slip into recession following a protracted Brexit process and, if trade deals are not as positive as expected, the additional costs will threaten growth during the course of the year. Germany produced a string of contracting economic figures during the end of 2019 as it wore a sustained decline in manufacturing sector and auto sales. Italy was in a technical recession for half of 2018 and has not really recovered where they have seen weak productivity, big debt figures and unemployment and these do not appear to be being restored quickly. China continued to slow during the trade war and this led to a forecast of GDP growth of 5.8% which sounds very high, but when compared to the figures of 6.6% and 6.1% in the last two years respectively it is certainly a big reduction. Add to these, significant stresses in the economies of Turkey, Argentina, Iran, Mexico and Brazil and the picture for global growth could be gloomy.

In the UK, the situation is finely balanced and after the prolonged Brexit situation our attention returns to stalwart economic data production. We saw prints in jobs and earnings data and there are small positive signs there as earnings rose slightly. We are waiting for inflation data which will be a potent conversation in context of the UK’s buoyancy. Expectations are a significant rise in Retail Price Index figures year on year but a reduction month on month. Consumer Price Index figures are pointing at a slight increase year on year but a big reduction month on month. Lastly, Producer Price Index looks set to largely balance out so that is good news for the near future if forecasts proves to be accurate.

Looking over the pond at the US inflation and housing data, there appears a mixed bag of results expected. Housing starts seem to have an expectation of a big contraction but there looks as if the Producer Price Index data will be a move higher, which will push an increase in costs to consumers over time and increase inflation more generally but this has a likelihood to manifest in the requirement of tools to mute this price pressure, namely interest rate hikes. This would need to be a sustained factor for this conversation to play out in this way within the Federal Reserve.

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About XE.com

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Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

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Looking for a Treasury & Trade Finance Business Partner

19-02-2020 | Treasurer Search | treasuryXL

Our partner Treasurer Search is looking for a Treasury & Trade Finance Business Partner for a multi-billion $ global market leader in various complex technological project industries.

The Treasury & Trade Finance Business Partner will claim her role in the teams that land complex technological & infrastructure deals in the global market. She will understand the project and help shape the underlying deal from financial risk perspective. In this she will take FX, payments terms, counter party risk and other parameters in consideration. With her toolkit filled with instruments like bank guarantees, letters of credit, commercial contract clauses and derivatives she will structure the best possible solution.

Next to project related tasks, the Business Partner is responsible for regular cash management and other corporate treasury tasks in cooperation with the headquarters that is based abroad.

Ideal Treasury & Trade Finance Business Partner

The ideal candidate for this position has the proper balance between relevant knowledge and externally oriented business behaviour. Skills for this position can be acquired in a banking environment as well as within an international technology corporate. As a person she is a strong communicator, analytical and willing to be a one-person-department. Most likely the ideal candidate has an academic degree in economics, legal, business science or other relevant areas.

Our Client

Our client is a multi billion global market leader in various complex technological project industries. The company has various divisions in different parts of the world. Engineers are the backbone of the company and their goal oriented, direct way of working is very telling about the company culture.

Remuneration and Process

The expected annual base salary for this position is €75K. Our client offers freedom and support to shape the position in the best possible way. For candidates that qualify, a more comprehensive job desription is available. The Treasurer Test might be part of the recruitment process.

Contact person

Kim Vercoulen

 

T: (0850) 866 798
M: (06) 2467 9339
E: [email protected]




Corporate Governance and Treasury | Embrace the Corporate Treasury Policy

| 18-02-2020 | François de Witte | treasuryXL |


Corporate Governance

Corporate Governance is a mechanism through which boards and directors can direct, monitor and supervise the conduct and operation of the corporation and its management in a way that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.

The ultimate responsibility for Treasury management within an organization lies with the board of directors. Due to the practicalities and technical aspects involved in corporate treasury, the board typically delegates the daily management of risk to responsible individuals in each department. In the case of financial risks, many of these are delegated to the treasurer.

Whilst, due to its specific activities, the corporate treasurer needs to take a lot of actions and decisions independently, it is important that he does this within a framework and Governance. Quite a lot of corporates have formalized this in a “Corporate Treasury Policy”.

Corporate Treasury Policy

The Corporate Treasury Policy is the mechanisms by which the board, or risk management committee (RMC), can delegate financial decisions in a controlled manner. This document should be a summary of all the principles approved by the Board or the Financial Committee of the Board as a mandate of the Board to the treasurer (the Treasury Mandate).

The Corporate Treasury Policy is a framework document, which covers the following areas:

Organization of the Treasury Function

In most of the companies, the Corporate Treasury Reports to the CFO. The CFO is usually himself a Member of the Executive Committee, which itself reports directly to the Board of Directors. (Treasurer – CFO – Treasury Committee – Audit Committee – Board):

A policy should set out clearly which decisions are delegated to the treasurer and when the treasurer should refer a decision back to the board or other person within the organization. Within several corporate, the Board of Directors have delegated the decision process to dedicated committee, like the Risk Committee, and the Liquidity and Funding Committee.

Treasury Control Framework (including the Code of Conduct)

Procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.

Ideally, this should also include a code of conduct. The Corporate Treasurer should act as a Corporate Custodian. In other words, he is Protector of the company’s assets, and should act according to a strict Code of Conduct and Ethics. There exist examples of codes developed by professional organizations such as IGTA, ATEB, AFTE, ACT and ATEL.

Liquidity and funding

The board should be informed about funding possibilities to put currency, maturity, cost and equity/debt character into a wider context. The board should decide on the strategy but can delegate fund raising decisions and actions to treasury. However, I recommend that Treasury asks the final board approval for strategic decisions (e.g. major syndicated loans, bond issues, etc.).

The board should have an overall view on the liquidity risk of the company. The Board should also define the financial policy, covering the gearing and maturity issues, fixed and variable interest rate obligations, dividend policy and covenants.

Banking Relationship

Banks chosen by the treasurer must be able to meet the needs of the organization, both domestically and internationally. I recommend that the Board approves annually criteria for selecting the banks with whom it will work.

Risk Management

The Treasurer must identify the various risks to which the company is exposed, quantify the impact, and should inform the Board thereof. He should estimate the size of these exposure risks and their impact on the he overall operations and financial performance of the company, and make recommendations in these areas

The board must approve the hedging policy, the company’s foreign exchange, interest rate and commodity risk management policy and its attitude to risk. It should define which part of the risks must be hedged and the hedging horizon. I recommend that the Treasurer submits at regular intervals to the Board the list of authorized instruments, the amount per instrument and their term

Investment Policy – Counterparty Credit Risk

The board should approve the treasury’s Investment policy including the choice of instruments, the list of counterparties used + the maximum amount/counterparty & maturity. It is recommended that the Board provides guidelines and limits per instrument.

It is recommended that the Board approves the guidelines for fixing counterparty limits, and maximum exposure per counterparty.

Authorized instruments and Arrangements – Authorized Approvers

The Treasurer should make sure that the board must understands and approve the strategies and instruments used and sets guidelines for the appropriate limits for their use. These guidelines need to ensure that treasury has not sacrificed long-term flexibility or

survival for short-term gain, especially in view of the volatile financial market’s situation.

Treasury Operational Risk

The treasurer should make the Board aware of the operational risks to which the company is exposed. He should provide recommendations in this area. Furthermore, the treasurer should also submit recommendations to the board on the treasury organization and the ways to reduce the operational risks.

Monitoring

A Corporate Treasury Policy has only sense, if there is a regular follow up and control framework; Hence procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.

It is also important to provide to the Board a regular update on the way the treasurer complies with the policy. The policy should also be regularly reviewed.

Treasury must alert the board to external changes and internal strategic developments, which may have long-term implications for the organization and make proposals for managing them.

The policy needs also to be reviewed at regular intervals each “Policy” in function of the market and of other internal or external developments. I recommend having treasury on the Board’s agenda on a quarterly basis.

Conclusion

Treasury is not an island in the company. It is closely linked to the corporate governance. Hence it is important to define the right framework.

I recommend to corporates to put in place a treasury policy validated by the Board of Directors and reviewed regularly. It is important to update the Board at regular intervals about strategic topics, such as strategic financing topics and risk management.

The treasurer has also an important educational role, as he must be able to make complex treasury topics understandable for the board members.

Hence there must be a good interaction between the treasurer, the CFO and the Board is key, where the Treasurer is the linking pin.

 

François de Witte
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
treasuryXL ambassador

Top 5 most common pain points in Treasury

14-02-2020 | treasuryXL | Michael Ringeling

The purpose of Treasury is to manage a company’s funding, liquidity and to mitigate its financial and other risk. Made up of three sub-disciplines, Treasury’s overall objective is to safeguard the company’s holdings and to follow the long-term strategy set forth by Corporate Finance (and strategy). Cash Management, on the other hand, is primarily focused on operational, short-term, efficiency and process optimisation, whereas Risk Management is oriented towards financial research and operational controls.

Michael Ringeling, corporate treasury expert,  made a top 5 of the most common pain points he encounters in Treasury, including consequences and a solution.

Top 5 of the most common pain points in Treasury

 

  1. Too many bank accounts at too many banks

Consequence:
Complex to manage, poor control, higher risk of fraud, higher costs, more KYC/AML requirements

Solution:
Less bank accounts at fewer banks, all via one or two electronic banking systems or multibank platform to manage payments and cash flows. The result will be more efficient, more secure and more cost-effective payment transactions, reporting and reconciliation into the ERP system.

  1. No reliable cash flow forecast

Consequence:
Poor liquidity management. Insecure about the required short and long term funding and poor management information.

Solution:
A good cash flow forecast, providing adequate insight in the organisation’s short and long term cash flows, will contribute to an efficient funding strategy and lower cost of funds.

  1. FX results, (negatively) impacting the company’s P&L

Consequence:
The company’s financial results are impacted by unforeseen and unknown FX results

Solution:
FX risk management analyses, create a FX policy and perform deal execution (hedging) to control FX results

  1. New Loan Agreement needed – negotiations

Consequence:
Difficulties in assessing if the loan terms and conditions are fair. Risk of overpriced loans and/or unfavorable terms and conditions required by the bank(s).

Solution:
Assist the company when negotiating with the bank(s) to get a fair deal with terms and conditions that will not unnecessary limit the company’s flexibility.

  1. Cash is trapped on too many stand alone bankaccounts around the world

Consequence:
Company cannot effectively use a significant amount of cash, resulting in higher (short term) loans and higher interest costs.

Solution:
Implementation of a cross border cross currency cash pool to centralise the company’s cash balances. As a result the amount of local trapped cash will be reduced and that cash can be used for general corporate purposes. Less short term loans and lower interest costs.

Sounds familiar?

Do you recognize the pain points that we mention above in your business? Or are you experiencing other critical treasury pain points in your business?

In our active network there are several treasury experts who can offer treasury support. They can be hired for specific projects or on a regular basis. Check Rent a Treasurer and let us help you.

 

Michael Ringeling

Corporate Treasurer Expert

Inflation Data for EURUSD

13-02-2020 | treasuryXL | XE |

Markets have once again turned risk averse overnight, with the Chinese city of Hubei the latest outbreak focus. With a European tech conference cancelled, as well as fears in South Korea and Japan. The medium and long-term impacts are still non quantified. Currency markets do not like uncertainty.

And so, the now go-to bellwether currency is the USD, which moved above the psychological level of 99.00 which has been touted for some days. As a consequence most currency pairs have moved lower against the Greenback. One of the more notable casualties is the most liquid pair – EURUSD. Generally regarded as a low volatility play, it’s has now moved down over 13.5 % in the last two years, and tests key support.

GBPEUR has gained momentarily as a result, and indeed UK importers can be buoyed by a much healthier session for GBP across the board. Risk bearing currencies like AUD, NZD and CAD have all suffered as a by-product, and will be dictated to by Geopolitical fears related to the Coronavirus outbreak.

Yesterday did not help the EUR on the data from with Industrial production numbers much lower than expected at -2.1%, a huge shift. And this fragility for the single currency will today be magnified by German CPI inflation releases. For the EURUSD traded pair, the release of US CPI inflation numbers later in the session could have a similar push/pull impact.

Back to the UK and today we see PM Boris Johnson reshuffle his cabinet, and whilst not significantly market moving; the emphasis will be closely eyed for negotiations with Brussels.

One final thing to note is the release this morning of the RICS house price balance numbers here in the UK. This number has shown a positive swing, the post UK. election decision clearly has people moving on up. Long may it continue.

 

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multibillion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

Financing a Livable World

11-2-2020 | by Aastha Tomar

If Greta Thunberg doesn’t inspire us, breathing some Delhi air may. While these might have been in news recently, more of this discussion is on social media rather than real action.

Sustainability has thus mostly been associated with activist connotation and, less with real, on-ground impact.

As we evaluate on-ground actions, investments towards such actions become first step and these need to make “financial sense” for investors to flock in. That’s when, I believe, that traditional financial acumen fails us. The foundational elements of investment rationale shall make such investment difficult. Let’s evaluate how –

  1. It’s all about ROI in purely Financial Terms: All financial evaluations are about monetary returns. Such approach is more likely to make Investing in sustainability related projects unattractive
  2. Organizations as going concern: While some projects have started evaluating impact of climate change, organizations are often considered as going concern without climate change & its impact. It’s it a time that we start considering some serious impact of climate change while evaluating cash flow and hence the project IRR.

Of all, these foundation elements make investment capability of capital markets to adapt in disruptive situations, like we are facing now for climate change, difficult. Financial markets, in its prevailing methods, would only consider climate change once its impacts are visible, but that, I guess, would be too late.

Having worked in Debt capital markets (DCM) my first reaction was to search of how DCM is contributing in sustainability and this led me to know about a beautiful concept of green bonds. The bond by their very name “green bonds” click into mind that there is something related to sustainability in it.

Green bond principles, intended to provide a framework for debt funding for projects which shall contribute to sustainability, is a step in the right direction. It has been framed with four core pivotal elements –

  1. Use of Proceeds
  2. Process for Project Evaluation & Selection
  3. Management of Proceeds
  4. Reporting

It’s the use of proceeds which sets apart green bonds from regular bond issues. The eligible projects for such issuance should be from around ten categories including renewable energy, energy efficiency, pollution prevention and control, green buildings etc.

A cumulative $580 billion of green bonds were sold through 2018, according to Bloomberg New Energy Finance. According to climate bond initiative in quarter 3 of 2019 itself USD 6.2 bn worth green bonds were issued worldwide, which is 87% up YoY. There were 139 issuers from 32 countries. There are many issuers joining the race and many nations as well. European nations being the ones taking the lead.

Though figures for green bonds may seem encouraging when we see them standalone but when compared to the global bond markets which are more than USD 100 trillion market, green bond market is hardly a fraction of it. Europe alone needs about 180 billion euros ($203 billion) of additional investment a year to achieve 2030 emission targets set by the European Union in the 2015 Paris Agreement on climate change.

In nutshell, green finance initiatives are steps in right direction but need more muscle and speed to enable actions on ground.

What are your thoughts?

Aastha Tomar

FX & Derivatives | Debt Capital Markets | MBA Finance
Electrical Engineer | Sustainability

Why your Business Needs a Long-Term Strategy to Mitigate Against Currency Risk

06-02-2020 | treasuryXL | XE |

Market volatility puts your business’ profitability and cashflow at risk to adverse movements in the currency you are exposed to.

Many businesses, particularly at the smaller end, are not aware they have an exposure to foreign exchange risk. Or, if they are, they may have never quantified the size of the risk they face.

Currency market exposure comes in different forms. Any business selling goods and services overseas will be concerned that a rise in the value of the US Dollar could damage their competitiveness in those markets. Conversely, if you’re importing anything from overseas, a fall in the value of your local currency will make those imports more expensive.

FX markets are difficult to forecast at any time, but even more so when you look beyond 6 months. While economists and market commentators can predict all they want, the reality is they never get it consistently right which makes relying on forecasts a risky strategy for your business.

How your business can mitigate against currency risk

Your best bet in combating the uncertainty that comes with fluctuating exchange rates is to have a long-term FX strategy in place.

An FX strategy involves paying attention to and managing risk, and ensuring your business has the right mix of products and services in place to help reduce your exposure to market fluctuations.

This is where working with a trusted international payments provider, like XE, comes into play. The right provider will be able to work with you to develop a strategy and will advise on the most suitable products and services to deliver favorable outcomes to your business’ profitability.

Ready to learn more?

A team of Foreign Exchange Specialists at XE have compiled an essential FX guide for US businesses – stepping you through the three key factors to understand about foreign exchange and how it affects your business, so you can make an informed choice when selecting the right partner to help you manage your international payments and mitigate against FX risk.

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multibillion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

Conference “Toekomst Betalingsverkeer” returns in April 2020, Future of Payments

04-02-2020 | treasuryXL | Kendra Keydeniers |

Euroform will host the 21st edition of the Conference “Toekomst Betalingsverkeer” on 7 April, 2020 at the Beurs van Berlage in Amsterdam. “Toekomst Betalingsverkeer” is a major event in the Payment Business with round table sessions, keynotes and more.

It’s time for big steps in the payment landscape!

What can you expect?

  • Expand your professional network with the attendance of 300 + strategic payment experts
  • Over 10 C-level speeches with topics like: Digital Transformation in Banking, FinTech, NextGen customer, New PSD2 Business Models, Blockchain Impact and Artificial Intelligence
  • 20 round table sessions: EID, PSD2, Instant Payments, Cybersecurity, Cryptocurrencies, Data Driven Business Models
  • Young Professional Breakfast
  • Plenty of networking opportunities with Drinks & Bites

Program and Speakers

This year there are a total of 34 speakers with a diversity of expertise. You can see an overview of all the speakers of 2020 here.

To take a deeper dive into the full program you can view and download the agenda here.

What happened in 2019?

Pieter de Kiewit

 

Pieter de Kiewit, Owner of Treasurer Search, visited the event last year and we asked him a couple of questions about the event:

 

 

 

Why did you attend the event ‘Toekomst Betalingsverkeer’ last year?
In my perception the developments in payments are diverse and frequent. Technology is making giant leaps. Consumer acceptance is slowly following. And the supplier landscape is shifting from traditional banks, to Fintech to dominant players like Apple, Google and Amazon. I hoped to gain further insight in what can and will actually happen.

What was your overall impression of the event?
Well organized, nice venue and professional. A nice mixture of keynote speakers, smaller presentations and roundtable meetings.

Did the event meet your expectations? And why?
Yes and no. I learned quite a lot and gained new insights. With my focus on corporate treasury I was surprised about the limited audience. All people I met were competitors in one way or the other representing banks, fintechs, tech solutions or payment service providers. There was some talk about consumer payments. I totally missed interest and understanding in the main client group of most people present: organizations actually doing and receiving payments. No Unilever, Belastingdienst, telco provider, e-commerce company or similar organization.

What is the best thing that you can remember of the event?
A keynote speaker informing us about technology in China. He told about a world I do not know about, where payments and doing business in general is very different and in many aspects ahead of us.

Will you attend this year again? If yes, what do you hope to learn and see?
If my schedule allows, yes. I would like to see a program similar like last year with further input for and from business to business clients of suppliers already present.

 

 

Last year, one of the treasuryXL ambassadors, Francois De Witte, chaired two round table sessions with the main topic: “The View of the Treasurer on Payment Transactions”.

He wrote a recap of the event and the round table sessions, check his recap here.

 

 

Join the event with discount and register exclusive via treasuryXL

The registration fee to attend the event is € 849,00 per attendee.

We are happy to provide our readers with a 20% discount on your registration fee.

Make sure to use this exclusive link to register with discount.

I wish you a great event!

Kendra Keydeniers

Community & Partner Manager treasuryXL