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Digital currency – to bitcoin a phrase
| 05-02-2018 | treasuryXL |
Theft
Yet another hack in the cryptocurrency world– this time of NEM at Coindesk – led to the theft of around USD 500 million. Security seems to be a factor and is having an effect on confidence and sustainability.
Lack of regulation
As a currency and industry that is still very young, there is a lack of proper regulation. When compared to legal tender currencies there is a distinct lack of consumer protection and regulatory framework. Losing all your savings is a high risk that is prevalent in an industry that is so lacking in clear and concise regulations. The Commodity Futures Trading Commission, a regulatory agency in the United States, recently subpoenaed Bitfinex – a cryptocurrency exchange – for possible price manipulation. Their currency – Tether – is supposed to be backed by traditional money, though it appears that Tether has been created without the backing of physical money.
Intervention
The Indian Finance Ministry has spoken about banning cryptocurrency – China is looking at blocking access to exchanges. In South Korea illegal foreign exchange trading using cryptocurrency has been discovered. Possible government intervention is detrimental to the development of digital currency.
Futures market
Whilst it is still too early to report in great detail, opinion is being voiced that the introduction of futures contracts are having an adverse impact on the pricing of cryptocurrency.
Banning
Major US banks have started banning their customers from buying cryptocurrency with their credit cards. The banks are worried about the price volatility and people purchasing investment products via credit.
Lack of commercial acceptance
Until cryptocurrency is accepted by major retailers, it will not be seen as a genuine alternative to fiat currency. Yet again, the price volatility appears to be holding back major stores in embracing the digital coins.
Obsolescence
As a pioneer in the cryptocurrency world, Bitcoin is starting to shows its age. Its file size – 1 megabyte containing about 2500 transactions – is being superseded. Bitcoin cash is 8 times larger and far quicker. It is taking a lot of time for transactions to be verified and the costs to send Bitcoin has increased dramatically – more than USD 100.
Bitcoin is still up around 700 per cent from the beginning of 2017, but the enthusiasm and positive belief seem to be evaporating as the market becomes more mature.
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Cash Pooling – where is the money
| 01-02-2018 | François de Witte |
The main objectives of the cash & liquidity management are to:
One of the most important techniques to achieve a better utilization of the available cash is the “cash pooling” or, in other words, the concentration of the cash to make it centrally available. The commonly used techniques in the market are the following:
In the present article, we will outline the current types of cash management tools, their advantages and the attention points.
Manual cash concentration: Intercompany payments
For companies, who have only a limited number of accounts to overview, it is recommended to set up a manual cash pooling. In this case, the treasurer overviews daily or weekly the balances of the different accounts, and when there are important debit or credit positions, he will initiate manual payments to balance the positions, and or to concentrate them on the central treasury account. If during the day, important movements take place, the treasurer can make some additional intra-company payments to balance the debit and credit positions. In order to avoid float, it is recommended to use the urgent payments clearing.
The main advantages of the manual cash balancing are the following:
However there are some drawbacks / attention points:
Automated cash concentration
The automated cash concentration, also called cash balancing, is a pooling technique requiring a physical transfer of funds to or from the participating accounts to concentrator account. The pooling movements are operated automatically by the bank
The most commonly used cash concentration is the zero balance cash balancing, as illustrated in the drawing down below. In this solution, the balances of the participants are daily or weekly swept to a concentrating account.
Figure 1: Outline of the zero balance cash balancing
There are several advantages to this system, such as:
However there are also drawbacks / attention points:
Notional cash pooling
The Notional cash Pooling is a cash pooling where there is no movement of funds. In such a pooling the credit balances of the participants are offset against debit balances of the participants. Hence the net balance of the group is used to calculate the debit or credit interest paid or received.
The system has a flat structure, which means that all the participating Accounts are basically equal to each other. However usually corporates designate one account as the treasury Account, which is then used to manage the system.
Figure 2: Outline of the notional cash pooling
The main advantages of the notional pooling are the following:
However there are also attention points:
Legal and tax aspects of cash pooling
Setting up a pooling requires some preparation, and some legal and tax issues need to be addressed, such as:
When setting up such structures, in particular when different countries are involved, you need to foresee a due diligence with legal/tax advisors and banks
For cash balancing with different legal entities, a requirement is also to be able to manage intercompany loan administration. There are banks and providers who come up with solutions in this area.
François de Witte
Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group
Liquidity Management – show me the money
| 31-01-2018 | treasuryXL |
Treasury is a function which entails many different roles and responsibilities. The main task is to monitor and manage the cash within a company ensuring there is sufficient liquidity. This means monitoring all the cash flows – both inflow and outflow, together with the sources of the flows – current operations, investments, borrowing etc. There must be enough liquidity to maintain the daily operations, whilst excess funds need to be invested. At the same time, Treasury must ensure that excess funds are invested in a safe and prudent manner and that future assets and liabilities are hedged where appropriate.
It has been said many times over – for a company cash can be compared to blood in the body or oil in an engine. Without it, a company ceases to be. When liquidity management is properly exercised, it allows a company to establish the maximum benefit from its cash flow, for the minimum of expenditure.
So, what happens to a company when liquidity management is not implemented?
Advantages of liquidity management
Designing and implementing liquidity management
Everything needs to be documented and signed off by the directors – it must be a policy. One of the greatest – if not the greatest – dangers for a company is not being able to forecast and maintain liquidity. However, in many companies the policy is only lightly enforced. Difficulties in forecasting cash flow are well known and documented, but the consequences are potentially very severe. It should be part of the monthly management reporting cycle and critically observed. Where necessary, actions need to be taken by the directors to ensure that the whole company is aware of the liquidity risks and procedures.
Next: Risk Management
Lionel Pavey
Cash Management and Treasury Specialist