Corporates Pay Too Much For Cross-Currency Payments


By Denise Bedell

 

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Corporate cross-currency payments are more expensive than they should be, according to SWIFT Sibos conference attendees. With trade flows changing and globalization on an ever-upward trajectory, managing FX risk and the transaction fees associated with payments in non-domestic currencies are high on the list of corporate treasury concerns—for both developed and developing markets companies. But the cost of cross-currency payments may, in fact, be higher than it need be.

 

But the cost of cross-currency payments is more than it need be, contends Rocky Motwani, MD at J. P. Morgan. He noted that most cross-currency payments are done via wire, which is essentially a high-value solution to a low-value problem. “You get immediacy, but at high cost. But typical cross-currency payments don’t need that immediacy.” He advocates using ACH for non-domestic payments—particularly in Asia. As companies can often forecast out a few days for cross-border payments (hence removing the need for immediacy), ACH can reduce transaction fees.

 

For MNCs with renminbi exposures, many are now evaluating the advantages of offering Chinese counterparties RMB settlement. But Michael Hogan, head of trade, Asia, at National Australia Bank, noted that much-hyped RMB payments are still a challenge for offshore corporates that do not have a natural RMB liquidity base to provide a natural hedge. It can be hard to hedge and ultimately much more expensive than dollar settlement. One participant added: “The forward market in RMB is still thin, so any large transaction can still move the market. The US dollar will continue to lead on the global stage.”