Insight to All Things Currency and Treasury Management

FiREapps has been leading the digital dollar conversation among corporates, most recently in interviews on Bloomberg Radio and Fox Business News’ Mornings with Maria Bartiromo and Countdown to the Closing Bell, discussing the need for mandatory automation in the corporate finance space as governments make the shift toward digital currencies.

In a drastic change to the landscape of finance, cryptocurrencies have taken the world by storm, with the first-ever bitcoin future trading on Dec. 10. First made available for mining in 2009, bitcoin archives and verifies transactions on the blockchain – a distributed ledger that records transactions.

As the financial landscape continues to shift more toward technology and cryptocurrencies come to the forefront, there are three main things that multinationals are paying attention to: the introduction of legislation to regulate cryptocurrencies, taxation, and the creation of digital currencies for individual countries.

Cryptocurrency in the Legislature

Although distributed in 2009, cryptocurrency is now becoming more mainstream, and as such is forcing governments to look at how they regulate it. Recently, the United States government introduced Senate bill 1241. This bill seeks to amend the definition of a financial institution to include, “prepaid access devices, digital currencies or any digital exchanger or tumbler of digital currency.” Additionally, it criminalizes the intentional concealment of ownership or control of accounts. These amendments, could, in turn, strengthen the control the federal government has over digital dollars.

Ambiguous Taxes

Bitcoin and other cryptocurrencies are not classified as a currency, nor are they taxed as such. Currently in the United States, the Internal Revenue Service (IRS), along with most other nations, subject cryptocurrency investments to capital gains tax, as it is considered “property.”

Digital Dollars

Cryptocurrencies created a market for digital currencies that reduces time and costs. As such, many countries are already embracing blockchain technology to release their own digital currencies.

The implementation of these digital currencies is not as far away as it seems – Russia recently announced the release of the CryptoRuble in January, solidifying its place as one of the leading countries in the digital currency race. Additionally, the United States Federal Reserve is working on its own distributed ledger technology (DLT), China has committed to developing and implementing DLT, and Venezuela is looking to launch its own oil-backed cryptocurrency. The implementation of these digital currencies will greatly benefit corporations, saving money and time with instantaneous transactions. Additionally, unlike regulations imposed by the government to increase controls, the control of these digital currencies will be handled by the Fed and the benefit is with the corporation.

As these countries change the manner in which their currencies work, corporations must also change the manner in which they handle their finances.

3 steps to the implementation of digital currency

What This Means for Corporations

From what FiREapps has heard, clients and other corporations are looking at the future of conducting business in digital currencies, but are paying close attention to changing legislation, taxation and the creation of digital currencies by countries.

No matter the progression, with the adoption of digital currencies, transactions will be immediate. Currently, finance functions mostly have two days to settle transactions, many of which are done manually. But when the transactions become digital, the days they used to have to settle transactions are gone. This means corporations will need to automate and integrate processing, liquidity and risk management processes to keep up with the instantaneous posting and clearing of transactions and the immediate risk created or elevated on international transactions.

As governments look to leverage blockchain technologies to release digital currencies, financial technology providers are doing the same to provide corporations with the software and processes they need to keep up with digital currency transactions. Ultimately, corporations need to work to effectively manage present and future currency exposures at the accelerated speed of digital currency transactions; this can only be done by leveraging end-to-end automation in terms of financial processes. If one does not automate and prepare for what is coming in 2018, they will be left behind and competitive margins will be smaller for those who don’t automate the process.

To learn more about how automating FX risk processes can better prepare your company for the future, contact a FiREapps Director of Risk Advisory.

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*Post Updated January 3, 2018