The strong US greenback is making life difficult for corporate treasurers.

Author: Denise Bedell

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The rising value of the US dollar is having a mixed impact on global corporates. For companies that export to the US, it is clearly a boon—making their products more competitive. US exporters, are, of course, experiencing the reverse; their products cost more on global markets. It also has a significant impact on every company that reports under US Generally Accepted Accounting Principles. This earnings season, companies reporting under GAAP were hit by huge currency headwinds in translating global capital into US dollars. The strong dollar is eating into cash reserves that companies hold in global locales, whether for operational reasons or simply to gain favorable tax treatment.

The net result is that corporate treasury and finance executives around the world are reevaluating their liquidity management and cash concentration structures and the currencies in which they hold global liquidity. They are also looking at their equity management structures and at how to ensure the strength, security and liquidity of their companies while best meeting the needs and wants of shareholders. This review could lead to a change, at least for some companies, in how share buyback and dividend plans play out over the coming year.

Corporate treasurers are also dealing with global market volatility and compliance issues. In various countries and regions around the world, there is an increasing focus on creating regulatory structures that support near-real-time value-transfer systems and regional cash concentration.

But that sort of overhaul can be slow in coming and could garner uneven levels of support from market to market. In the Middle East, for example, central banks and multilateral organizations have been working hard to build a best-practices payments infrastructure for real-time gross settlement (RTGS), electronic check clearing and other pathways to automation.

Real-time payments in the business-to-consumer and business-to-business spaces have been a central talking point in cash management circles. Given the many successful rollouts of these systems—at least 18 countries have live faster-payments systems—a number of central banks and payments bodies have issued papers in the past year on how to continue pushing such efforts forward.

In Europe, both the European Payments Council and the European Banking Authority have launched studies on real-time payments, and the EPC has stated that the Single Euro Payments Area (SEPA) will move toward support for peer-to-peer payments, purchasing cards, e-invoicing and other digital payment initiatives. And one of the last bastions of check usage in the developed world—the United States—is in discussions on how to begin building such a system. Toward that, the US Federal Reserve released a study last fall on the benefits of moving to a faster-payments system. Given the strong support for the “check culture” in the US and the complex payment infrastructure, however, it will still be some time before that becomes a reality. Plus, banks in the country have to get their returns on the billions they have spent building out paper-to-electronic check support solutions before considering the billions more that will need to be invested in a new system.

Meantime, the ISO Real-Time Payments Group in early August issued the first draft of ISO 20022 standard messages as part of an international project to coordinate standards creation for cross-border real-time payments.


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