Insight to All Things Currency and Treasury Management

Wolfgang Koester, CEO of FiREapps, was recently featured on sharing his thoughts on the potential efficiencies that blockchain/ distributed ledger technologies (DLTs) offer corporate treasury executives.

Right out of the gate, Koester implored readers to set aside “all preconceptions about cryptocurrencies” so they could evaluate DLTs free of the hype that now surrounds bitcoin and other digital currencies.

Doing so, he writes, enables executives concerned about foreign exchange (FX) shortfalls to see “blockchain provides a way to … gain greater visibility into currency exposures and FX-related losses, which cost multinationals billions of dollars each year.”

Attitudes surrounding the new technology have evolved quickly, Koester writes. Approximately a year ago, he notes, the Association of Financial Professionals (AFP) surveyed financial professionals and found more than half said their organization had no plans to use blockchain/DLT. But, by early 2018, things had changed. A more recent AFP survey of financial executives showed about a quarter of companies were using DLT – while the remainder said their organizations were currently evaluating its potential benefits.

“This transformation should not come as a complete surprise,” Koester writes. “As has been widely reported, many leading corporations are now taking blockchain seriously.” Koester makes his point by offering a long list of leading companies (IBM, Microsoft, JPMorgan Chase, Citigroup, Nasdaq, etc.) now investing billions of dollars into blockchain/DLT technology.


Blockchain is No Bubble

“The very fact that so many corporate heavyweights are investing in blockchain should put to rest any notion that blockchain/distributed ledger is a ‘bubble.’ It’s not; the technology — in its current form as well as its inevitable future permutations — is here to stay,” writes Koester.

Koester believes corporations now recognize blockchain/DLT “can enhance and secure any collaborative activity, either inside a single organization or across a multitude of companies or entities.” That’s because blockchains are made up of distributed ledgers, meaning “blocks” of important data reside across vast networks of computers. This means no one person or entity owns the data; instead, the ledgers of information are visible to all stakeholders in a processor transition. Every transaction and entry is automatically evident to all other stakeholders.

“This facilitates full visibility,” he writes, “and eliminates the need for intermediaries and middlemen. Every transaction is timestamped and fully transparent. This infuses the entire ecosystem with trust, efficiency and compliance.”


What Blockchain Means for Treasury Managers

The trust and transparency inherent to blockchain/DLT make it an ideal technology for treasury managers, says Koester. FX is not only the world’s largest market – representing $5 trillion in transactions each day – it is also the most volatile. Each day treasury managers are expected to manage FX-related data across an array of global entities, all while staying ahead of the volatility and protecting corporate earnings in ever-changing rate environments.

But, as Koester points out, most financial professionals use spreadsheets to accomplish this task, even though (according to AFP) only about a quarter of them believe spreadsheets are efficient in managing risk. This explains why – in a single quarter in 2017 – North American and European companies lost $5.27 billion in FX-related losses.

Rather than relying on legacy, manual spreadsheets, Koester urges treasury teams to explore the benefits blockchain/DLT offers.

“Finance executives can take steps to curtail those losses, by replacing outmoded legacy programs with the efficient, secure, and transparent technologies such as DLT,” Koester writes. “The broader visibility enabled by blockchain would empower corporations to quickly see currency risk and hedge accordingly.

“FX teams could also quickly leverage interest-rate differentials between one currency and another. Although it’s still in its infancy, blockchain technology offers the potential to help multinationals introduce more efficient bookkeeping.”


Next Steps

Read Koester’s full article here.

Or, contact FiREapps directly to find out how you can begin modernizing your organization’s foreign exchange risk management program, ensuring it is operating in-line with current industry best practices.


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