Insight to All Things Currency and Treasury Management

“Blockchain technology … is not yet the panacea finance professionals have been waiting for. It … remains a work in progress.”

This prognosis – courtesy of FiREapps CEO Wolfgang Koester – may come as a bit of disappointment to those CFOs and treasury executives who have been led to believe that blockchain technology is the solution to a myriad of challenges corporate finance teams wrestle with each day. He is a proponent of the new technology, but Koester advises executives to proceed with caution.

Koester shared his thoughts in a recent article published in Global Banking & Financial Review. Entitled “Blockchain and DLTs Must Evolve to Meet the Needs of Corporate Finance and FX“, he looked at distributed ledger technology (DLT), what it is capable of delivering to finance professionals and what gaps must be addressed to ensure broader adoption by corporations.

The Appeal of Blockchain Technology


Right now, DLTs “enable data to be owned and overseen by all stakeholders [in a process], each of whom has full visibility into every transaction, payment or entry,” he wrote. “Not only does this facilitate transparency, it also enables reconciliation to occur quickly and free of friction. Additionally, costly middlemen can be eliminated.”

Therein lies one of the overarching reasons corporations are investing billions of dollars into blockchain technology, Koester reasoned: “How could any corporate leader looking for trust, transparency and efficiency in their operations, resist a technology that promises trust, transparency and efficiency?”

What Corporate Finance Needs from DLT

But Koester said current incarnations of blockchain and DLT technology do not resolve gaps that must be addressed before the technology will be fully embraced by corporate finance teams.

For instance, he said, although eliminating needless middleman in any process may sound like a “giant leap towards efficiency,” he points out that regulators and compliance officers generally welcome middlemen in trade settlements and other complex processes.

Compliance concerns also factor into other elements that DLT enthusiasts champion about the new technology, Koester wrote. “Although ‘open-source,’ peer-to-peer architecture facilitates collaboration, it can also trigger compliance-related anxieties for executives who may be concerned that too many stakeholders have access to proprietary data and confidential information.”

“Corporate finance teams are asked to negotiate high volumes of complex trades and settlements.  It remains unclear if today’s DLT can accommodate the intense demands.”

But Koester said the scalability of the new technology may be the biggest “unknown” when CFOs ponder if blockchain is right for a company’s architecture.

“Each day corporate finance teams are asked to negotiate high volumes of complex trades and settlements,” Koester wrote. “It remains unclear if today’s DLT can accommodate the intense demands treasury teams face when executing foreign exchange (FX) trades.”

Does Blockchain Have a Place in Corporate Finance?

Should board members and C-level executives curb their DLT enthusiasm? Koester quoted a recent World Bank report that concluded: “Waiting for ‘perfect’ DLT solutions could mean missing an opportunity to help shape it.”

CFOs and treasury managers should track the growth and usefulness of blockchain, he wrote, just as they stay current with all the latest treasury technology. “By being proactive, corporate executives can have a hand in shaping the evolving DLT, ensuring it meets the real needs of their treasury teams.”

Despite any temporary reservations he may have, Koester is confident future incarnations of distributed ledger technology will play an important role in helping corporate treasury departments manage risk.

“Any technology that can deliver greater visibility into transactions and exposures while facilitating more efficient settlements would be a welcome addition to any treasury team’s toolbox,” he wrote.

You can read the entire article here.

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