Tag Archive for: corporate treasury

Tipco at the DACT Treasury Fair

| 15-11-2017 | treasuryXL | TIPCO Treasury Technology GmbH |

The DACT (Dutch association of Corporate Treasurers) will be holding their annual Treasury Fair in Noordwijk at the Hotel van Orange on 23rd and 24th November 2017 – the most important annual treasury event in the Netherlands. Discover treasury best practices, learn about the latest trends and exchange experiences. It will contain 9 practical workshops spread out throughout the day on topics including, among others, trade finance, supply chain finance, liquidity forecasting, cyber security and the Blockchain. There are more than 50 exhibitors present at the Trade Fair including Tipco Treasury & Technology GmbH- a partner of treasuryXL.

Company Profile

Treasury Reporting at the push of a button! TIPCO is the leading expert for treasury reporting in Germany, Switzerland and Austria. We develop customised solutions for our clients that are fast, flexible and easy to use. Our software TIP is a web-based application containing a diverse range of modules to support everyday reporting needs: Banking Account Administration, Financial Status, Liquidity Planning, Risk Management, Bank Fee Controlling, Compliance & Reporting and our Survey Tool.

With these modules, our clients can overcome problems created by heterogeneous system landscapes and find an easy way to communicate with their subsidiaries. Furthermore TIP is able to use existing data and avoids manual data input where it is not necessary. Huge amounts of data can be interpreted in seconds and reports are available by the push of a button. As a spin-off of the Austrian treasury consulting firm Schwabe, Ley & Greiner TIPCO unites treasury expertise with business intelligence competence.

Due to this unique combination, we are able to realise our projects with a holistic view and to the complete satisfaction of our clients.

If you are at the Treasury Fair, please take your time to visit their stand and mention treasuryXL.

This is Tipco’s own message via LinkedIn announcing their participation.

We wish Tipco success at the DACT Treasury Fair!!

If you want to find out more about TIPCO and their services and products please refer to their company profile on treasuryXL.

The size and shape of your treasury team

| 09-11-2017 | Pieter de Kiewit |

Treasury TeamLast week I received a call from one of my clients. Over the last years, I found several members for their team. Given the transition they are in, they were looking for benchmark information to shape their treasury team and make it future proof. This has kept me thinking and I started gathering information in order to give a proper answer. As to be expected, there is no standard template resulting in an easy answer. Even for more evolved job types like sales or accounting this is a hard question, corporate treasury is too young and small for sound statistics.

To make my analysis workable, I decided to measure the size of the team in a straightforward headcount. When talking about shape, I would like to work with the main functional areas: cash management, risk management, corporate finance and support. Of course this is an oversimplification. I think the following variables are the most relevant.

To start with the obvious: size matters. Size in revenue, number of employees, number of countries active in, number of currencies used, number of payments are all related to size of the treasury team. Not 100%. Senior management requesting detailed and up-to-date information requires a bigger team. We see this especially with organizations in turbulent situations, internally or in dynamic markets. Treasury teams that recently started, do not yet have a focus on efficiency and tend to be bigger. The willingness to invest in modern IT solutions on one hand creates a bigger team: key users and treasury IT managers, on the other hand it replaces staff doing manual work.  Finally improving aspects like segregation of duties and back-up typically create a bigger team.

Moving forward to the shape of the treasury team or perhaps the size of the various functional areas, I observe that the industry and company status have their impact. Typically, companies with a dynamic balance sheet, due to distress or growth (autonomous or take overs) need a bigger corporate finance function. A longer balance sheet in a capital intense industry requires a bigger team. In this area I also see an increase in project and customer finance teams contributing in the structuring of business deals.

Companies with diverse and dynamic payment flows need bigger cash management teams. Especially corporates with an ambition towards strong centralization require extra central staff. They need stronger software support, communicate a lot with subsidiaries and have to understand the business. If achieved, central cash management can be managed by few.

I observe a decrease of number of staff working in FX and interest risk management. Corporates are more risk averse, markets are transparent and ICT enables STP processes. In parallel other types of risk increase the workload: counter party, commodities, insurance, etcetera. Big data and business modeling is having its impact.

This blog does not have the ambition to be comprehensive, the above could be more thorough. Furthermore I could elaborate on aspects like control, IT and especially back office and settlements. Should they even be in your treasury team? I think the topic deserves further attention and could be researched by more than one graduate student.

What are your thoughts? What obvious aspect should be included? I look forward to your reactions,

Pieter de Kiewit

 

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

How to connect to your bank electronically

| 26-10-2017 | François de Witte |

One of the main challenges in treasury is ensuring the connectivity with your banking partners. Currently corporates use the e-banking, or “electronic banking” channels. ‘Electronic banking’ can be defined as the way in which a company can transmit transactions and obtain reporting instructions to a bank remotely and electronically.

In the present article about bank connectivity, we will outline the current types of e-banking channels in the market, their advantages and the attention points.

Interactive banking channels

For interactive e-banking channels, typically the communication is initiated by the corporate client from a PC within the finance department and the instructions are transmitted to the bank through the internet.

Banks are developing their portals more and more: ING Business Payment, Connexis, KBC-Online, IT Line, RABO Corporate Connect, etc. They also provide a full range of services through them.

Illustration of the interactive electronic banking channel:

 

 

 

 

 

 

 

Currently the interactive- banking channels are widely used by corporates and other organizations, because they are easy to implement, user-friendly, enable to work on a standalone basis and less expensive. However, the drawbacks are that they are not always that suited for mass payments, and that each bank has its own system. Consequently, if you work with different banks, you will have different electronic banking channels for each bank, which adds to the complexity.

In some countries, the banks have put their efforts together to create a multibank interactive electronic banking channels (e.g. Isabel 6 in Belgium and Multiline in Luxembourg).

In my view, the interactive e-banking channel is best suited for corporates having not too high volumes of transactions and working with only few banks, or in countries were multibank electronic banking channels are available.

Host to host electronic banking channels

Some corporates or public institutions have very high volumes to treat, and will need for this a specific direct connection with their bank, a so-called “host to host” (H2H) connection. This is an automated solution for high volume data transfer between banks and their corporate clients.

Sophisticated H2H connectivity solutions give banks the flexibility to exchange information with their corporate clients in preferred file formats, agreeing on network protocols, and security standards.

The following figure illustrates this type of e-channel:

 

 

 

 

 

 

 

H2H e-banking channels allows for automated payments and collections, attended (where the client needs to take an action) or unattended (directly initiated by the IT system) connection / authorization. They can treat very high volumes, and to integrate the data into ERP systems.

However, they are also more expensive, because they require a specific IT set-up and usually the services of a middleware provider to ensure the connectivity between your ERP or IT system and the bank.

Up to some years ago, corporates had to set up H2H connections with each of their banks, but now several multibank H2H solutions have been developed by the TMS (Treasury Management Systems) providers or by other multibank providers such as TIS, MultiCash and Power2Pay.

In some countries, the banks have set up common interbank protocols enabling an easier and standardized connection. The best know is EBICS, which is currently in use in Germany and France.

In my view, the host to host banking e-channel is best suited for corporates having very large volumes of transactions and requiring a high level of integration with their ERP or IT systems.

SWIFT e-banking

SWIFT has extended from a bank-to-bank platform to a corporate-to-bank platform, and has also launched its own bank connectivity solution, SCORE (Standardized Corporate Environment). SWIFT enables hence to replace the various e-banking systems with a single, bank-neutral multibank e-channel. This means that treasurers and finance managers can connect with their banks worldwide in a consistent way using industry-recognized standards.

Outline of a SWIFTNET Multibank set-up (source SWIFT):

Companies can connect to SWIFT in many ways. One option is to establish a direct connection to SWIFT, but this can be a technically complex exercise. As a result, many of the companies connecting to SWIFT do so via a SWIFT service bureau. In such a set-up, most of the technical challenges are resolved by the service bureau

The third SWIFT connectivity option is Alliance Lite2. This solution enables corporates to connect to SWIFT in a quicker and less expensive way.

The SWIFT channel offers, beside the multibank character, many other advantages, such as the SWIFT standards, services beyond payments, such as FX and deposit confirmation and securities transactions, and an improved security / reliability compared to the classic e-banking systems

However, the Swift e-banking solution is not easy to implement, and can be quite expensive (in particular for the direct connection and the connection through a service bureau. Hence this solution is more suite for very large corporates and institutions, working with many banks.

Conclusion:

When looking at setting up the e-banking connectivity, several factors need to be taken into consideration, such as the number of banks and transactions, the complexity of the organization and the treasury. Smaller organization can perfectly work with the interactive e-banking channels, whilst larger and more complex organizations need to consider the multibank H2H connections or a SWIFT setup.

In the framework of PSD2, with the XS2A (access to accounts), banks in the EU/EEA will have to provide access to authorized third parties. I expect that thanks to PSD2 the cost of multibank e-banking platforms will go down, which is good news for corporates.

 

François de Witte

Founder & Senior Consultant at FDW Consult

Introduction core team Treasurer Development

| 19-10-2017 | treasuryXL  | Treasurer Development |

Earlier we informed you about the Treasurer Development initiative. The members of the core team of Treasurer Development aim to contribute to raising the professional level of corporate treasury and increase acceptance and recognition of corporate treasury. Starting point for them is the treasurer as a person.

 

In the kick off meeting a core team was created; these are the members:

  • Janneke Nonkes, former group treasurer and coach
  • Robert Dekker, manager of the post graduate Register Treasurer program at the Free University in Amsterdam and treasury consultant at KPMG
  • Frans Boumans, responsible for the minor treasury management program at the University of Applied Sciences in Utrecht and former banker
  • Pieter de Kiewit, recruitment consultant and owner of Treasurer Search

All core team members work independently in this initiative. They do not represent each other or treasuryXL as a core team member. They aim to inspire, inform and deliver positive criticism. The opinions expressed by a member of the core team are attributed to that person and these opinions are independent and not necessarily shared and/or endorsed by all the other members. treasuryXL  is the communication platform for Treasurer Development. Blogs, discussions, round table meetings, curriculum build-up and adviser are all results that can and will be the result of Treasurer Development.

First initiative coming from Treasurer Development is a cooperation between Frans Boumans and treasuryXL. All of us will start blogging on related topics. Janneke and Pieter will develop a free of charge telephone quick scan in which treasurers can brainstorm about their career development. Robert will inform you shortly about curriculum developments in the Register Treasurer program. Both the Hogeschool Utrecht and the Vrije Universiteit will want to brainstorm with you about guest lecturing, internships and graduation projects.

So far, the first responses on this initiative are very positive. We are open for suggestions and look forward to informing you further.

treasuryXL

[icon icon=”envelope” color=”” size=”tiny” with_circle=”0″ link=””] [email protected]
[icon icon=”phone” color=”” size=”tiny” with_circle=”0″ link=””] 06-21303744

 

Flex Treasurer: Who needs a treasurer?

| 05-10-2017 | Olivier Werlingshoff |

 

Do all international companies need a Treasurer or a Cash Manager? Yes and No would be my answer. In this article I will give my opinion on the reasons (not) to hire a Treasurer or Cash Manager.

First we have to focus on the definition of a Treasurer. Wikipedia: “he or she is responsible for liquidity risk management, cash management, issuing debt, foreign exchange and interest rate risk hedging, securitization, oversight of pension investment management, and capital structure (including share issuance and repurchase).”

 

Activities are Cash Management, Risk Management. Corporate Finance and Treasury operations & control. In a lot of companies all these activities and processes are part of the job of a controller and a finance manager.

When the company has financial problems the cash management activities, especially the cash flow forecast and the (inter)national banking environment, will come into the spotlight. A reliable cash flow forecast is built up on the right information about the cash position and the planning for the period to come. The problem is how accurate are the predictions for the future in the ERP systems? The right information can be obtained by asking not colleagues of the finance department but the sales colleague and procurement. This can be a time-consuming exercise.

There are a few new fintech companies who focus on the optimization of cash management processes. It is possible to manage all your bank accounts with one single system, where different ERP and company systems can be connected to each other which make it easier to set up a cash flow forecast. The search for the right information can be facilitated.

If you focus on the corporate finance activities such as an IPO or a refinancing, specific and knowledge is needed. This does not happen often.

My suggestion is to hire a Flex Treasurer and let him make a scan of all the treasury processes in the company. The Flex Treasurer can also implement improvements on the cash management and risk management activities. When all improvements are done see if the activities can be integrated in the existing jobs or you could hire a cash manager.

If a company decides to do an IPO or a refinancing there are plenty of companies specialized in this field. Therefore it would be smarter to use an interim consultant till the job is done.

Olivier Werlingshoff - editor treasuryXL

 

Olivier Werlingshoff

Owner of Werfiad

Review European Fintech Awards 2017: diverse, inspiring and consumer oriented

| 02-10-2017 | Pieter de Kiewit |

27 September I visited the European Fintech Awards event in Brussels. I consciously tried to focus on the elements that are relevant for corporate treasurers. After my visit of the Dutch Fintech Awards I had high expectations. I came back inspired, though not all was relevant. This is my review.

The organisation was done by Alex van Groningen Different from the Dutch Fintech Awards, the audience was not centralized in one hall, but spread out. In parallel there were (keynote) speakers, contestants were pitching in groups of three, we had companies with a stand who did separate pitches and there were discussion sessions. One on one meetings were facilitated in a separate room, using a convenient app. Making choices was inevitable.

Keynote speaker opening the event was Chris Skinner. As an expert in the field and experienced speaker he was able to inspire and inform the audience. Hindsight I would have chosen to attend more of the panel discussions. Topics only touched upon by Chris were placed in a broader perspective, further information was added. The expertise level of the panel members was impressive.

As to the companies with a stand, I wonder if there was a proper match between them and the audience. I doubt if any deals were made. Of course networking is not always to land an instant deal. What I did notice is that the majority of the companies had a strong consumer focus. There was a lot of talk about b-to-b-to-c marketing: offering fintech solutions that enable your client to server consumers. I found a few companies offering potentially interesting products for corporate treasurers, I will inform you about them separately.

Looking back, two things, I took from the event, stand out. The first is that innovation is not about “creating faster horses” (car replaced horse), but about creating entirely new markets. The second is that fintech is maturing. The technologists, entrepreneurs and existing market parties are telling a more balanced and understandable story. For the corporate treasury community this is an interesting event, but only once a year. Perhaps we will see each other next year.

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

 

 

Hot topics in corporate treasury, the survey results

| 28-09-2017 | treasuryXL |

Last month we organized a small survey, one question, to find out which treasury topics are highest on the to-do the list in corporate treasury. In cooperation with Treasurer Search we reached out to our network. Due to the set-up of the survey I want to describe the results in two separate lists. We asked one question: “make a list with a maximum of five topics”. As this was a free text survey, there was a variety of answers. In total, we had to digest a list of roughly 125 topics mentioned. I want to emphasize that the scientific methodology for this survey would not have been approved by my graduation professor.

The first list is based upon key words only, with a very narrow read on topics:

  1. IFRS and other regulatory affairs;
  2. Risk management (policies and procedures);
  3. FX;
  4. TMS;
  5. Bank relations;
  6. 3rd party risk;
  7. Development of USD and GBP, based upon political developments;
  8. Cash flow forecasting.

Bear in mind that topic 1 has been mentioned 11 times, topic 8 is mentioned 5 times. This list gives you an indication but compares strategic with operational. And both FX as well as the USD & GBP topic in one list feels suboptimal.

After some internal discussion, we decided upon a different approach. Based upon what we encounter in corporate treasury every day, we decided to cluster topics on the same abstraction level and came upon the following list, in order of how often topics were mentioned:

  1. Markets & Risk, including political developments and their impact on both FX and IR (34 times);
  2. Liquidity management and cash flow forecasting, including relevant cash management topics (21);
  3. TMS, banking systems and fintech relevant for corporate treasury (18);
  4. Bank relationship management, including banking costs, risk and bank regulations (14);
  5. Regulatory affairs (IFRS) (11);
  6. Corporate finance and funding specifically (10);
  7. 3rd Party risk (6);

Here the difference between the difference between topic 1 and topic 7 is almost a factor 6. This list, in my opinion, paints a clearer picture. I am a bit surprised how prominent topic 1 is, how low funding is on the list and about 3rd party risk being on the list.

We will use the list to gather extra content and the students of the Hogeschool Utrecht will write blogs, using this list as input.

We look forward to your response on the results of this survey. See also https://www.treasuryxl.com/treasuryxl/hu-treasury-papers-digging-into-the-treasury-hot-topics/

 

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Does your treasury have a digital mindset?

| 25-9-2017 | Patrick Kunz |

 

In an previous article I have talked about the IT changes that make life easier for a treasurer in the future (or now already). In this article I want to talk about the digital mindset of the person using the IT – the treasurer. Treasury is a numbers game. We treasurers use these numbers to optimise the cash or risk of the company. We make money with money. These numbers have to come from somewhere in the organisation and it is usually never treasury itself.

BIG data

Big data is a hot topic in treasury but for treasury it was around longer. The treasurer needs to get their input information for all over the company. Cash inflow from sales, cash outflow from procurement and investment teams, HR etc. All this data needs to be gathered. The digital minded treasurer thinks about optimal ways of gathering this data: automatically. The treasurer starts its day with the actual cash balances and then looks forward. He/She basically needs to predict the future. How great would it be if all this data would be available with the push on a button. An ideal world ? Maybe, but it is possible. Bank statements can be automated to be loaded collectively or in a Treasury Management System. The treasurer starts the day with up to date cash balances, and he has not started working yet as this was automated. He then updates the cash forecast. How? By pushing update in his cash forecasting system. Sounds too easy? True, it took weeks to find out where to find the needed input information and to automate getting this data grouped together and in a structured way. But a digital minded treasurer knows that the data is somewhere in the organisation; it only needs to found and linked to the treasurers information recourses so it is always available. The treasurer only has to check the validity and the quality of the data and see if it needs improvement. In this way the digital minded treasurer can automatically create a cash forecast and continually improve it. A cash forecast should be ready before the second morning coffee. In an ideal world it would be ready with a push on a button. Artificial intelligence makes it possible. The digital minded treasurer is steering it.

Process improvements

The digital treasurer looks at ways to improve its document flows and payments. Not only looking at costs but also looking at how many (manual) interventions are needed. FX deals can be setup to straight through processed (STP) while blockchain would make it possible to improve the speed of payments or document flows globally. Everything is connected, as payments go from a process to straight through and instant it has an immedicate effect on the cash availability and forecasting. While now the bank is the place to go for bank accounts and payments this might not be the case in 10 years. The digital treasury might be able to setup his own bank in the future. By using technology.

The future

The treasurer makes sure that he is on the steering wheel while technology makes it possible for him/her to check his surroundings so he does not crash. A bigger front window makes for a better view forward (forecasting), a higher max speed makes for quicker travel (updating changes in forecasting), adaptive cruise control saves effort on speeds control (automatic updating and AI, STP). The treasurer knows he needs to keep the engine running to keep moving. He also realises that he does not need to be a mechanic to do this; however he needs to be able to tell the mechanics quickly why the car is not moving as the treasurer wants it to be so the mechanic can fix this. Or maybe the digital treasurer might change the car for a plane in the future, or even a rocket?

It is clear that technology and treasury are interconnected. Already now and even more in the future. A treasurer therefore needs a digital mindset to survive and keep up with the information needs of his department and the company as a whole. And it’s not rocket science (yet).

Patrick Kunz 

Treasury, Finance & Risk Consultant/ Owner Pecunia Treasury & Finance BV

 





 

The IT savvy treasurer

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How much are you paying your bank?

 

First 100 days of a treasurer

| 11-9-2017 | TIS (Treasury Intelligence Solutions GmbH) – Sponsored content |

When a government official enters into office, the 100 days in the new role are closely observed by all. Similarly, the first impressions left by a new treasurer are often long lasting and critical to success further down the road. In most cases, after the first three months, all stakeholders have formed their opinion.

Sounds familiar? We know that the first 100 days in a new job are known to be crucial in setting the right course. The challenge facing treasurers is to acquire a quick overview, identify company-critical risks, introduce necessary measures at short notice and, at the same time, convince the new boss that they are also able to set the right strategic course.
In our Executive Briefing, our treasury experts share their experiences and provide tips and insights to support you in the first 100 days of your latest position.

TIS (Treasury Intelligence Solutions) GmbH

 

How can treasurers use cryptocurrencies?

| 7-9-2017 | Carlo de Meijer |

 

Recently I read a blog from Victoria Beckett published in GTNews, titled “How can treasurers use cryptocurrencies”.  Nowadays there are more than thousand different cryptocurrencies in circulation. The dollar value of the 20 biggest cryptocurrencies is around $ 150 billion. While cryptocurrencies soared to unknown levels, also the explosion in Initial Coin Offerings, or ICOs for funding purposes is evidence of their growing attraction. But are these cryptocurrencies suited for corporate treasuries.

Benefits

In her blog Victoria Beckett said that there are several benefits to treasurers using cryptocurrencies. These may bring various benefits including avoiding paying large transactions fees to banks, realising immediate payments and the ability for transactions to be kept open or private. According to her corporate treasury business no longer need to use mainstream financial regulatory frameworks. Cryptocurrencies could provide business with the ability to move assets outside of the normal banking regulatory framework.

She argued that one of the key benefits to making business payments using cryptocurrencies is that it cuts out banks in the transaction completely, avoiding large transaction fees, while “payments can also get transferred immediately anywhere in the world”.

Critics

But there were some critics as “banks have to trade off the operational benefits that the technology may provide against the added cost of needing to buy and sell a cryptocurrency to make a transaction.” “Therefore, the benefits are low when dealing with efficient ‘corridors’ such as US and Europe, but higher when transacting with Zimbabwe” David Putts.

Besides, there are a large number of different cryptocurrencies in circulation with different protocols etc. These are not interoperable/interchangeable.  So when using cryptocurrencies they at some point in time have to be transferred into fiat money. And that also costs money.

I also missed other use cases for corporate treasurers in the article. Just using cryptocurrencies payments would be a very limited use case, given the large number of other activities performed by corporate treasurers.

Risky business

When reading the article I got the impression that the risks of cryptocurrencies were rather  under estimated. Certain features of cryptocurrencies are not backed by any government, have no status as legal tender and rely on network protocols and cryptographic techniques to enable counterparties to transact. This may present various risks.
First of all cryptocurrency exchange platforms normally have no regulation. Thus there is no legal protection. And we have seen the various examples of hacking these exchanges with many people losing their money.
Second, virtual money is normally stored in a digital wallet on a computer. Though these wallets have passwords and key they are still valuable for hacking etc.
Third, there is no protection for funds under EU law when using cryptocurrencies as a means of payment. We still live in a largely fiat-money dominated world. So these cryptocurrencies had to be concerted one day into their own legal currency and that costs money.
Fourth, cryptocurrencies are very volatile. There is no guarantee that the cryptocurrencies will remain stable.  Cryptocurrencies currently lack a derivatives market, which makes them a risky medium for business contracts that last for any amount of timer, especially given their constant value fluctuations. This year for example the exchange rate of the bitcoin climbed from a low of 968 dollar to more than 3000, fell back to 1.800 six weeks ago and climbed to 5.000.
Fifth, due to the untraceable nature of cryptocurrencies, they provide a high degree of anonymity, making them vulnerable to misuse for criminal activities.

Action from regulators across the world

For some, it is a pro that cryptocurrencies in most countries are not regulated, such as for hackers and/or speculators.  That idea is however rapidly changing giving the risks associated. At a global level, there is an urgent need for regulatory clarity given the growth of the market.

All these risks mentioned above are prompting action from a growing number of jurisdictions.

Regulators in China have publicly announced that they will forbid the use of ICOs. And also regulators in other countries like Japan, Singapore, and the US are looking at ways to regulate. The SEC in the US has officially confirmed it was looking into regulation of cryptocurrency ICOs. The SEC is mainly concerned with the risks these ICOs pose. And Singapore will regulate ICO offerings that are deemed to be securities.

But also on a more broader scale Europa there is increased activity by regulators in Europe to reign in the use of crypto currencies. The EU Parliament is expected to pass measures soon to bring certain virtual currency service providers within their AML (anti money laundering) / CTF (counterfeiting) regulation. These measures do not seek to prevent the use of cryptocurrencies, but will require virtual currency service providers to implement customer due diligence measures.

Polish regulators are warning investors and banks to avoid dealing with digital currencies like bitcoin and ether. The regulators clarified that cryptocurrencies are not considered legal tender in Poland.

The Maltese regulatory watchdog (MFSA) also warned traders about the risks associated with the virtual currency. According to them a virtual currency is an unregulated digital instrument and is a form of money that is not equivalent to the national currencies. The MFSA however stressed that It does not (yet) regulate the acceptance of payment of service in regards to the virtual currencies.

Are central banks overcoming their reservations?

Central bankers, from Russia to China, Frankfurt and New York, are increasingly wary of the risks posed by these crypto currencies. I therefore question if central banks worldwide are overcoming their reservations versus cryptocurrencies and really come out in favour of the cryptocurrency.

The recent boom in cryptocurrencies and their underlying technology is becoming too big for central banks to ignore. The risk is that they are reacting too late to both the pitfalls and the opportunities presented by digital coinage.

Bitcoin and its peers pose a threat to the established money system by effectively circumventing it. CBs are well aware of losing control over the money supply, if they don’t react. A solution may be that CBs are issuing digital money themselves to maintain control. Various central banks worldwide are now experimenting with that idea.

Forward thinking

The attraction of virtual currencies is mainly for speculative reasons, rather than for corporates to facilitate treasury. Corporate treasuries are increasingly looking for centralisation of the treasury organisation away from decentralisation. They also are very much focused on reducing the various corporate risks including FX, short term interest rate, cross currency liquidity, etc.

And when it is regulated on a larger scale it is questionable if the described benefits of speed, efficiency or scalability attributed to the use of cryptocurrencies still will meet the costs associated .

The announcement by the Bank of China to put a halt on initial coin offerings or ICOs had a negative impact on the very volatile bitcoin and other cryptocurrencies. In one day it lost almost 15% of its value. The corporate treasurer however does not like volatility!

 

Carlo de Meijer

Economist and researcher