Can Stablecoins Fix FX Risk?
Written by Sharyn Tan (Views are my own) Stablecoins are often positioned as a breakthrough for cross-border payments and treasury operations. By enabling near-instant, programmable settlement, they dramatically shorten settlement times — and with that, surely too the window for foreign exchange (FX) risk. But here’s the harder question: Similar to liquidity traps, do stablecoins actually eliminate FX risk — or do they also simply move it somewhere else? The answer, unsurprisingly, sits somewhere in between. Where stablecoins could help: FX risk compression In traditional finance, FX risk largely arises from time — the gap between when a transaction is initiated and when it finally settles. That gap can stretch from days to weeks, especially across borders, and hedging it adds cost, complexity, and operational overhead. Stablecoins materially improve this dynamic. By settling transactions in seconds rather than days, they compress FX exposure windows to near zero for many use cases. This could be especially powerful in: Recent developments — such as atomic swaps between USD stablecoins and local-currency variants — go a step further. By ensuring payment-versus-payment execution on-chain, they eliminate settlement risk in the classical sense. From a treasurer’s standpoint, this is not as frequently cited (yet) as a benefit of stablecoins. It won’t just be moving money faster — stablecoins could meaningfully reduce transactional FX risk. Where FX Risk Doesn’t Disappear — It Evolves That said, FX risk doesn’t vanish just because settlement is instant. It reappears in different forms, some of which are less familiar — and potentially harder to manage. 1. Conversion and On/Off-Ramp Friction Despite experimentation with non-USD stablecoins, the ecosystem remains overwhelmingly dollar-centric. For non-USD users, FX exposure still exists at the edges: These ramps introduce slippage, fees, timing risk, and liquidity constraints — especially in thin or volatile currency pairs. For treasurers managing true multi-currency portfolios, this may mean FX risk is reduced, but not eliminated. 2. Depegging as “Synthetic FX Volatility” Stablecoins introduce a new risk that looks suspiciously like FX volatility: depegging. Even well-capitalized, regulated stablecoins have experienced temporary dislocations during periods of stress. When confidence in reserves or issuers wavers, a stablecoin can trade below par — functionally equivalent to a sudden currency devaluation. From a treasury lens, this matters…. a lot. A depeg behaves like FX risk in disguise: the asset you assumed was stable suddenly buys less than expected, precisely when liquidity matters most. 3. Structural FX Effects at the Macro Level At a systemic level, widespread use of USD-pegged stablecoins can accelerate currency substitution, particularly in high-inflation economies. While this protects individual users, it can: For global corporates, this introduces second-order risks — regulatory, political, and operational — that don’t appear on a simple settlement cost comparison. The core insight: FX risk isn’t solved by faster payments alone. Stablecoins are exceptional at compressing time-based FX exposure, but FX also depends on: Today, those still largely sit with banks. Open stablecoin networks excel at programmability and settlement. Banks excel at FX pricing, balance sheet strength, and compliance. If these two worlds remain separate, FX risk simply shifts — it doesn’t disappear. What would actually “fix” FX risk? A credible digital FX future would require: Treasurer’s Verdict Stablecoins don’t eliminate FX risk — they significantly compress it for the right use cases. For USD-centric flows and high-friction corridors, the benefits are already tangible. For truly global, multi-currency treasury operations, stablecoins are a powerful component of the solution — but not the whole answer. The real breakthrough won’t come from stablecoins alone, but from hybrid FX infrastructure — where banks and open networks interoperate to deliver speed and depth, automation and trust. That’s where FX risk stops being merely shifted — and starts being structurally reduced. Also Read Join our Treasury Community Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
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Trade war can hurt software & service businesses, too
This article is written by HedgeFlows Currency swings from global trade disputes can undercut service business profits – but often, the true impact is only noticed months down the line. While manufacturers may brace for tariffs and supply disruptions, service-based firms from SaaS startups to international consultancies are just as exposed to the shifting tides of foreign exchange (FX) markets. Yet, without the right tools and awareness, these risks might go unseen until it’s too late. This post explores how trade wars and FX volatility affect service sector businesses, why losses can remain hidden in financial statements, and what steps you can take to protect your margins. How currency moves can erode your profits Trade wars make headlines for abrupt price swings of goods and disrupted supply chains, but the knock-on effect on FX rates is just as critical. Political tension, tariff talk, and the prospect of weakening the US dollar have sparked significant adjustment in currency markets. Since the start of April, the US dollar has weakened by more than 6% against Swiss Franc and Korean Won, and 4-5% against a wide range of currencies such as EUR, GBP, ILS and MXN. Despite regular denials from central banks and government officials, speculation over a weaker dollar lingers, and global currencies are moving in response. For service businesses paid in one currency and with operational expenses in another, these FX moves quietly shape profit and loss. Unlike product-based businesses, where frequent orders and invoices can instantly reflect currency changes, the impact on services often lurks off the balance sheet. Many finance teams only focus on FX losses once they hit the income statement. By then, much of the damage is already done. Worse, not all FX effects even show up in company accounts, masking real losses and eroding business value over time. Hidden FX risks service businesses face 1. FX costs in software-as-a-service (SaaS) companies Consider a SaaS company earning revenue in US dollars but employing developers in Poland, Israel or Mexico. Each monthly payroll is paid in local currency. When the US dollar drops 5% against the Polish Zloty, Israeli Shekel or Mexican Peso, your US dollar costs for software development instantly rise by 5%. Since payroll is an expense, not an asset, it won’t appear on the balance sheet or reveal FX losses through your usual lines. You don’t see a separate “FX losses” entry in your profit and loss report for payroll outflows. Yet, if exchange rates remain steady going forward, your future R&D costs in dollar terms are now permanently higher. This quiet cost drag compresses margins and misses the eye of many boards and CFOs. Example in numbers Suppose you were spending $200,000 per month on developers in Mexico. If the USDMXN exchange rate drops 5%, your cost jumps to $210,000 almost overnight. But unless you’re monitoring real-time FX adjustments and adjusting forecasts, you may not react until the effect accumulates over many months. 2. Professional services and contract devaluation Service firms based in the UK, but winning large contracts priced in US dollars (or currencies pegged to the dollar, like the UAE dirham or Saudi riyal), face a different trap. Long-term deals locked in at a fixed exchange rate may quietly decline in value if sterling strengthens or the US dollar weakens. Since many of these projects invoice as they reach milestones, the fall in contract value isn’t immediately visible on your books. Out-of-sight, out-of-mind Until an invoice is raised, the future revenue sits as an off-balance-sheet expectation. A change in the dollar’s value transforms the pound amount you’ll eventually receive, but unless you recalculate contract values regularly, the risk remains hidden. This can leave your finance team underestimating future threats to cash flow and profitability. Why do these FX risks often go unnoticed? Service businesses have less tangible working capital than manufacturers. Currency effects filter through financial statements more slowly and often bypass headline metrics until the fiscal year closes. Payroll and professional fees are generally accounted for at spot rates, while revenue projections might lock in old assumptions. Traditional accounting tracks realised gains and losses, but the impact of shifts in currency on future contract values or long-term overseas payroll is typically off the radar. This quiet erosion of profit can materially change your margin profile by the time anybody spots a trend. Strategies for managing FX exposure Proactive currency risk management gives service businesses a fighting chance—even amid a trade war. Here’s where to start: 1. Monitor and forecast FX exposure regularly 2. Hedge critical exposures 3. Build FX awareness into pricing and contract terms 4. Improve internal reporting 5. Stay informed on policy signals The silent cost of doing nothing Currency-driven profit erosion grows more dangerous the longer it goes unaddressed. Service businesses, in particular, tend to be agile and cost-conscious, but ignoring FX exposure creates a blind spot that can wipe out hard-earned growth. If your business pays international staff, delivers long-term contracts in foreign currencies, or relies on predictable margins for growth, FX risk from trade disputes is real and urgent. It’s critical to bridge the gap between finance and operational leaders to build resilience for whatever the global market brings next. Try implementing some of these strategies or consult with a specialist to evaluate your current risks and possible protections. If you’re interested in more insights on managing FX risk or want help safeguarding your profits, check out our video explainer and get in touch with our team for a personalised assessment. Take control of your service business margins today Currency volatility from trade disputes is here to stay. Don’t wait for next quarter’s report to discover that avoidable profit loss is already baked into your numbers. Take a proactive approach to FX risk, educate your finance team, and incorporate currency moves into both planning and day-to-day decisions. With practical steps and the right awareness, service businesses can stop hidden FX shifts from quietly eroding future value and keep financial performance on a solid footing—even through…