Everything you need to know to set a budget rate
This guide is from our content partner, Ebury It’s crucial for you and your team to define a robust FX strategy for your business. However, in the global currency landscape, where many factors are constantly changing and evolving and, at times, presenting unprecedented challenges, this begs the question: How do we set a robust FX strategy? What is a budget rate? A budget reference rate, commonly abbreviated as budget rate, is a reference exchange rate that a company uses to set prices, costs, or benchmark for a campaign or budget period. One goal of FX strategy is to protect this budget rate and fortify cash flow forecasts when transacting internationally. For example, if you are a UK importer buying your goods from a supplier in EUR and selling your final product in GBP, you will need to know the cost in GBP to calculate the selling price within the UK. Setting a budget rate is essential for any global business, whether importers or exporters. It enhances financial planning, improves forecasting, provides certainty about the future value of FX exposures, and helps gauge the impact of FX market fluctuations on profit margins. Common methodologies to calculate a budget rate There is no straightforward answer or one-size-fits-all approach to implementing a budget rate in your FX or treasury policy. It should be well-thought, considered within the overall FX strategy, driven by company forecasts and data, and tailored to suit your unique needs and financial goals. If you are an importer, it can be your cost rate plus some buffer to ensure stability. If you are an exporter, it is the rate you expect to convert your incoming foreign currency exchange to home currency. Depending on the seasonality, if you want to set stable prices for the year at the start of your annual budget, the budget rate will coincide with your annual ‘campaign’. In this case, protecting the budget rate (with FX hedging) against unpredictable currency rates is akin to protecting the campaign rate. However, the approach to arriving at this rate changes if you are a business that runs more than one campaign within a budget period. In this case, you will need to protect the budget rate of an individual campaign rather than the annual budget rate. Different businesses approach this depending on their business situation, including FX flows, historical data, cash flow forecasts, needs, goals, and even risk tolerance levels. It can be: Each year, each business, and each goal demands a unique approach. Using last year’s budget rate as a benchmark because the exchange rate favoured you in the previous year may not be the best approach. Similarly, using the current spot rate when budgeting may expose you to future fluctuations. Hence, this approach is best suited when you have a short-term outlook. In a nutshell, depending on your goals, you’ll set a budget rate before the start of the financial year, season, period or order and, accordingly, design an FX strategy. Questions to consider before setting a budget rate If you are from the finance or treasury team, here are some of the questions that will help you assess your business circumstances and FX flows before you set up a budget rate: Setting a budget rate isn’t easy. But the right approach will help you build a resilient FX strategy, fortify financial stability, monitor your exposure, and optimise your international cash flows. Read the free e-book to decode the role of a budget rate, its importance, how to set it and what to consider before applying it: CLICK HERE TO GET E-BOOK Also Read Join our Treasury Community Treasury Masterminds 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. Notice: JavaScript is required for this content.
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Embracing ISO 20022: Fedwire’s Modernization and Its Implications for Treasury
From Treasury Masterminds The upcoming transition of the U.S. Fedwire Funds Service to the ISO 20022 messaging standard marks a pivotal moment in payments modernization. Originally set for July 14, the move underscores a fundamental shift from the current format to a globally accepted standard, promising enhanced data richness, improved straight-through processing, and greater interoperability across financial systems. Understanding ISO 20022 ISO 20022 is more than just a technical upgrade; it represents a paradigm shift in payments infrastructure. Unlike its predecessor, it offers comprehensive data capabilities, supporting richer payment information, structured messaging formats, and improved end-to-end visibility. For treasurers, this means enhanced efficiency in cash management, better risk mitigation through improved data quality, and enhanced liquidity forecasting capabilities. Beyond IT: A Treasury Imperative While often viewed as an IT initiative, ISO 20022 implementation is fundamentally a treasury matter. Treasurers play a crucial role in ensuring smooth integration and leveraging the new standard to optimize treasury operations. Key responsibilities include: Internal Data Quality Challenges One of the critical challenges for organizations during the ISO 20022 implementation is ensuring robust internal data quality. Detailed address fields, beneficiary information, and payment references must be accurately structured to meet the new standard’s requirements. Incomplete or inconsistent data can lead to transaction failures, delays, and reconciliation issues, impacting overall operational efficiency. The Impact on Treasury Operations Moving Forward As the deadline approaches, treasurers must collaborate closely with IT teams, financial partners, and vendors to ensure a seamless transition. Beyond compliance, ISO 20022 presents an opportunity for treasury departments to innovate and optimize their payment processes, driving strategic value for the organization. Conclusion The ISO 20022 Fedwire migration represents more than a technical upgrade—it’s a transformative opportunity for treasurers to modernize payment operations, enhance efficiency, and strengthen financial resilience. Embracing this change positions treasury teams at the forefront of financial innovation, paving the way for a more connected and data-driven future. 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.
The Evolution of Treasury KPIs: 6 Metrics That Matter in 2025
This article is written by Treasury4 Business and financial landscapes are constantly evolving—and with them, the function of the treasurer’s office. In years past, the treasurer’s responsibilities focused primarily on cash management and liquidity oversight. But today, the modern treasurer role has developed into one of a strategic partner responsible for driving business growth. As the treasurer’s responsibilities have grown, so have the key performance indicators (KPIs) that measure its success. As we enter 2025, new KPIs are shaping the way treasurers approach decision-making and financial strategy. Today, we’ll explore the evolution of treasury KPIs, emerging metrics that matter in 2025—including real-time cash visibility, forecasting, risk management, and more—and how they empower treasurers to excel in today’s data-driven financial environment. The Shift in Treasury KPIs Historically, treasury KPIs revolved around traditional metrics like liquidity ratios, cash flow forecasts, and debt levels. These indicators provided a solid foundation for managing immediate financial needs. However, the financial landscape has grown significantly more complex due to factors such as globalization, increased regulatory scrutiny, and technological advancements. Put simply, traditional treasury KPIs are no longer sufficient to measure treasury performance. While these metrics are still relevant, they tend to have a “rearview mirror perspective”—focusing on historical data rather than real-time insights. They fall short in addressing the dynamic challenges faced by modern treasury teams. Today’s organizations require treasury metrics that can: The result is a growing emphasis on KPIs that are forward-looking, technology-driven, and integrated across systems and departments. With that, let’s take a closer look at some of the specific metrics that matter for treasurers going forward. Emerging KPIs for Treasury in 2025 As the role of the treasurer continues to evolve, several modern KPIs are taking center stage. These metrics empower treasurers to achieve greater agility, precision, and alignment with organizational priorities. 1. Real-Time Cash Visibility Real-time cash visibility is a critical component of the modern treasurer’s office. Where is cash deposited and with whom? What is the complete picture of liquidity across cash and investments? How much cash is restricted? Organizations require granular insights into cash positions at the entity and department levels to make swift, informed decisions. Delayed or incomplete data on cash positions can result in missed investment opportunities, inefficient financial strategies and decision-making, or reporting errors. Leveraging tools with real-time reporting capabilities ensures accurate cash tracking across accounts and divisions, enabling better liquidity management, risk mitigation, and agility in making data-driven decisions. 2. Working Capital Efficiency How efficiently is your capital working for your organization? This is a crucial question that treasurers must monitor closely. Working capital efficiency is measured in several ways, including: Tracking metrics like days sales outstanding (DSO), days payable outstanding (DPO), and inventory turnover provides insights into operational performance—and can help treasurers keep a thumb on the pulse of capital efficiency. Adopting automation tools can help improve efficiency by reducing manual processes, enabling faster reconciliation, and providing more accurate working capital analysis. 3. ESG-Linked Financial Metrics In recent years, environmental, social, and governance (ESG) considerations have become a central focus for businesses. As a result, KPIs tied to sustainability now play a pivotal role in treasury operations. For instance, treasurers are now responsible for overseeing “green” financing initiatives, ESG-compliant investments, and sustainability targets for the organization. By managing ESG financial metrics, treasury teams contribute to their company’s broader corporate social responsibility goals while staying ahead of investor expectations. 4. API and Integration Metrics In an era of interconnected tech systems, API integrations are vital for seamless data exchange between banks, ERPs, and treasury management systems (TMS). Improved integration leads to faster decision-making, reduced errors, and better data integrity. Related KPIs can assess the speed, accuracy, and accessibility of data shared through APIs. 5. Forecast Accuracy Rates Accurate forecasting has always been a cornerstone of treasury operations, but the adoption of predictive analytics is elevating its importance. The key metric for treasurers to consider is the precision of their cash flow forecasts—in other words, the variance between predicted and actual cash flows. Forecasting accuracy is critical for making agile, forward-looking, data-driven business decisions that allow the organization to stay one step ahead of the competition. Leveraging historical data and predictive models enhances forecast reliability, which reduces surprises and enables proactive strategies. 6. Risk Management KPIs With growing exposure to global markets, cyber threats, and evolving regulations, risk management has become more important than ever. It’s critical for treasurers to monitor their company’s currency exposure, counterparty risk, and the effectiveness of hedging strategies. They must also keep a close eye on factors like financial data security and regulatory compliance. Effective risk management and mitigation protect against market volatility, help comply with changing regulations, and safeguard against data breaches. How to Implement and Track New Treasury KPIs These emerging KPIs require treasurers to adopt the right combination of technology, collaboration, and goal setting. Here are some tips for implementing them. 1. Leverage Advanced Treasury Platforms Treasury management systems like Treasury4 enable teams to centralize data, automate reporting, and gain real-time insights. Features such as API integrations and predictive analytics enhance the accuracy and efficiency of KPI tracking. 2. Foster Cross-Functional Collaboration Treasury teams must work closely with finance, compliance, and operational units to align their KPIs with organizational goals. Collaborating on KPIs and sharing accountability ensures everyone within the organization is working towards the same set of broader goals. 3. Set Benchmarks and Continuously Improve Defining clear benchmarks for each KPI helps measure progress and identify areas for improvement. Regularly review your benchmarks and make adjustments to ensure that KPIs remain relevant and impactful. The Strategic Role of KPIs for CFOs and Treasurers Emerging KPIs are more than performance indicators; they are strategic tools that empower CFOs and treasurers to align treasury functions with overarching business objectives. With valuable insights into liquidity, risk, and efficiency, CFOs can make informed decisions to drive corporate success. For example, with access to real-time cash visibility, CFOs can help allocate resources to high-priority projects or optimize debt structures. Meanwhile, treasurers…
Building resilience through treasury policies
This article is a contribution from our content partner, TreasurySpring Following our webinar on Treasury Policy, it’s clear that the evolving financial landscape presents both challenges and opportunities for treasurers. The discussion shed light on the critical role of treasury policies in guiding organisations through uncertainty, fostering resilience, and embracing innovation. This blog captures the webinar’s key insights to help organisations stay ahead in 2025. Importance of treasury policies Treasury policies are more than just procedural documents; they’re the backbone of financial governance. They serve as essential frameworks to manage cash, foreign exchange, debt, compliance, and banking relationships. Effective treasury policies ensure consistency, provide clear guidance for stakeholders, and establish measurable benchmarks for performance, making them indispensable for organisations aiming to navigate challenges with confidence. As a treasurer, they’re your license to act. 2025 challenges and adjustments Navigating interest rate volatility The Federal Reserve’s uncertain trajectory on interest rates continues to create market turbulence. This interest environment will require treasurers to remain agile, conducting out-of-cycle policy reviews to reassess investment strategies. What may be an annual or bi-annual review cycle, in times of uncertainty, can be increased to ensure you have the right risk exposure and controls. This proactive approach ensures that organisations can pivot quickly, safeguarding returns, and minimising risk. The rise of Bitcoin and digital assets With increasing regulatory clarity and institutional adoption, boards are urging treasurers to assess the feasibility of incorporating digital assets. While this represents uncharted territory for many, it underscores the need for forward-looking treasury policies that adapt to emerging trends. Evolving treasury policy best practices Striking a balance between flexibility and governance For multinationals with treasury teams operating across geographies, ensuring some degree of decentralisation of decision-making to account for regional nuances is important. The general philosophy of the policy should be the same everywhere, but global teams need flexibility for regional variations, particularly in areas with: exchange controls; less robust banking systems; limited financial options; different payment processing requirements etc. Quantifying policy parameters Clear, measurable guidelines, such as FX exposure limits or weighted average maturity targets only enhance a policy’s effectiveness. These metrics provide treasurers with actionable insights and a concrete framework for decision-making. Socialising policy changes Securing buy-in from audit committees, CFOs, and other stakeholders early in the process fosters trust and accelerates approval for policy updates. Transparency and collaboration are key to ensuring seamless implementation. Emerging topics in treasury Integrating artificial intelligenceAI is revolutionising treasury operations, offering unprecedented efficiency. However, this innovation comes with risks. Policies must govern the use of AI tools, ensuring compliance with data security standards and mitigating the potential for breaches or errors. By addressing these challenges head-on, treasurers can leverage AI’s benefits without compromising security. Strengthening bank and vendor management Effective management of banking relationships remains a critical challenge. Treating banks as vendors, with clear oversight, transparency, and cost-control measures is essential. Regular reviews and structured policies can help mitigate risks associated with poor account management. Enhancing cybersecurity in treasury operations With cyber threats on the rise, treasurers must prioritise cybersecurity. Regular penetration tests, employee training, and robust callback protocols are vital to safeguarding financial systems. Additionally, periodic reviews of cybersecurity insurance and internal disaster recovery plans ensure preparedness against potential breaches. As treasurers face an era of unprecedented challenges and opportunities, robust and adaptable treasury policies are more critical than ever. From navigating macroeconomic uncertainties to embracing technological advancements, these frameworks should enable organisations to remain resilient and forward-looking. And by staying proactive and collaborative, treasury teams can turn policy into a powerful tool for navigating the complexities of 2025 and beyond. *TreasurySpring’s blogs and commentaries are provided for general information purposes only, and do not constitute legal, investment or other advice. Also Read Join our Treasury Community Treasury Masterminds 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.
Formula for trouble: why Excel can’t handle FX portfolio management anymore
This article is a contribution from our content partner, Bracket Spreadsheets have served treasury teams well – but markets, tech, and FX risk have moved on. It’s time to rethink how you manage your foreign currency portfolio and stop clicking on that familiar green icon. Love it or hate it, Excel is embedded in treasury workflows across the globe. But what started in the 1980s as a flexible, go-to tool has become a bottleneck – especially for mid-market teams managing multi-entity, multi-currency portfolios in fast-moving conditions. As Pierre Anderson, Co-Founder, Bracket, explains: “It’s not that Excel is broken per se. It’s just not designed to handle the complexity of modern FX portfolios. And it’s holding many treasury teams back.” Here’s why spreadsheets are no longer cutting it: 1. Markets move fast. Excel doesn’t FX is a real-time market. Spreadsheets are typically static (unless you do the work to automatically pull in rates, which many teams don’t have the in-house skills or resources to achieve). So, by the time treasury has updated yesterday’s rates and rebuilt its exposure view in Excel, the market has already shifted. “That delay has both operational and strategic impacts, weakening decision-making and potentially increasing risk,” cautions Anderson. 2. Risk management shouldn’t rely on VLOOKUP In addition to the lack of real-time data, when markets are calm, spreadsheets can give the illusion of control. But in volatile conditions, the cracks become obvious. “Rather than being purely reactive to market moves, treasurers are increasingly looking to be proactive around their FX exposures, running stress tests, modelling worst-case scenarios, and determining clear courses of action,” elaborates Anderson. But Excel isn’t built for that. “Simulating the impact of a 5% move in EUR/USD on cash flow, for example, typically requires manual inputs, duplicated tabs, and formula checks. Often, it also means hours of work – and the potential for human error can lead to a lack of confidence in the result,” he notes. The problem with Excel isn’t just humans, of course. It’s more structural: “All this means there’s no real safety net. And when you’re managing millions in FX exposure, that’s not only inefficient, but also dangerous,” explains Anderson. 3. Your team is working around the system, not with it Many treasury teams have built complex workarounds just to make Excel behave like an FX portfolio management tool. They’ve added macros, linked files, and built templates with tabs for each counterparty and/or currency. And in some cases, they’ve created truly impressive set-ups (with very limited resources). Until a link breaks and things unravel. Or the key person who built the macros decides to leave, taking their knowledge with them. As Anderson points out: “This kind of workaround also means highly qualified professionals are buried in repetitive maintenance tasks, spending more time updating spreadsheets than thinking about pricing, timing, or strategy. Understandably, team members become frustrated. It’s not sustainable and doesn’t add value.” 4. Fragmented files mean fragmented decisions Another challenge facing many mid-market businesses is that FX exposure doesn’t live in one place. There is no single source of truth. As Anderson explains: “Different business units often maintain their own spreadsheets. Trades might be logged in different formats. Subsidiaries might also update their numbers at different times. Group Treasury is then expected to manually piece together a coherent view from scattered sources.” Unsurprisingly, this approach can be time-consuming and unreliable. “We’ve also seen teams double-count trades because of mismatched formats. Or miss exposures entirely because of delayed updates. Another common issue is making hedging decisions based on partial data, only to revise them days later when new numbers surface.” In other words, this fragmentation makes it much harder to act decisively or explain the company’s true risk position. Time for a rethink What’s clear to Anderson (and no doubt many treasury leaders) is that Excel was never meant to be the main tool for managing currency risk. It’s become the default because it’s accessible, affordable – and already in place. But when Excel starts hampering decision-making, limiting talent, and draining value from the function, it’s time to think again. “I’m not advocating entirely ditching Excel! It’s just about choosing the right tool for the job,” explains Anderson. “Spreadsheets are still useful. But they’re not enough for managing currency exposure at scale. And we see more mid-market firms making the switch to dedicated FX portfolio management tools. Because they’ve realised that Excel was creating blind spots they couldn’t afford to ignore.” In contrast, a centralised FX portfolio management platform creates a single source of truth. “Everyone sees the same data. Everyone works from the same numbers. And when a fast decision is needed, treasury is prepared and ready, not busy reconciling.” The benefits are real: And perhaps most importantly, a team that’s no longer buried in ‘busywork’, thanks to the significant reduction in time spent on manual data entry and reconciliation As Anderson concludes: “Spreadsheets have served their purpose, and still do in many areas. But FX portfolios have evolved. The tools we use to manage them need to evolve too. Because when you’re using something that wasn’t built for the job, you’re not managing risk. You’re adding to it.” 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.
The US, China and the New Economic Reality – Waiting for What Comes Next
This article is written by HedgeGo The geopolitical and economic landscape is undergoing profound change. The US is at the centre of a global restructuring process accompanied by strategic economic policies. Changing approaches to trade and fiscal policy play a key role, in particular the increasing use of tariffs as a primary instrument for asserting economic interests. The State of the US Economy The United States runs large trade and current account deficits, which are offset by capital inflows from abroad. This means that foreign investors buy US assets to offset the deficits. At the same time, high fiscal deficits reinforce this mechanism by stimulating consumption and overall demand in the US. The result is rising deficits and increasing dependence on external capital flows. One solution to this problem would be a drastic fiscal consolidation programme. However, this would have serious negative consequences, ranging from a slump in consumption and a correction of overvalued financial markets to a possible recession. The associated collapse in demand for US dollars would severely disrupt the international currency structure and reduce the attractiveness of US assets. It seems highly unlikely that the US would be willing to pay this price for economic stability. Instead, it will continue on its current course: an externalising approach to economic policy that seeks to pass on the costs of its own surpluses and deficits to external actors. US Economic Power Set to Wane One aspect that is often underestimated is the role of the US in global trade in services. In particular, the large technology companies on NASDAQ generate a significant proportion of their revenues abroad – around 41% of their revenues come from international markets. Free access to these markets is therefore vital for the US economy. But there is a potential risk here: If countries under pressure use access to their markets as a bargaining chip or favour alternative suppliers, the US could find itself on the economic defensive. This is particularly true of regions that are vital to the global economy because of their resources or economic structures. Countries in Africa, Latin America and Asia increasingly have economic alternatives – especially China – that allow them to break away from their one-sided dependence on the US. A deeper tectonic shift in economic power structures is emerging. China in the Right Position China’s economic rise in recent decades has been dynamic, but not without excesses and structural challenges, for example in the property sector. Nevertheless, the country has established itself as a global economic partner and increasingly offers alternatives to US-led structures. While the costs of an economic exit from the US would have been prohibitive in the past, they are now much more calculable. This opens up new opportunities for countries that want to escape Washington’s economic pressure. Most importantly, China is no longer just catching up economically, but is already competing with the US in a number of technological and strategic areas, such as artificial intelligence (DeepSeek). As a result, the United States is increasingly losing its role as the hegemon with no alternative, which could have long-term consequences for the global economic system. Adaptability as a new core competency. Current developments are characterised by increasing volatility. In times like these, adaptability becomes a critical skill – not only at the government level, but also at the corporate level. While treasury departments have focused heavily on process optimisation and risk mitigation over the past 15 years, they are now faced with the challenge of adapting to a rapidly changing reality. Companies that do not develop this ability to adapt will find themselves unable to act in times of crisis. Processes that ensure efficiency in stable times may prove useless when economic conditions change fundamentally. Conclusion The coming years will be characterised by economic restructuring, geopolitical power shifts and increasing uncertainty. The US has failed to address its structural weaknesses through sustained reform and is instead trying to shift the costs of its economic strategy to other players. At the same time, China is emerging as an alternative economic power, offering new prospects for countries seeking to break away from US dominance. In such an environment, stability and predictability are increasingly illusory. The successful players will be those who can adapt quickly and flexibly to new circumstances. The era of stable processes is being replaced by an era of adaptive resilience. Also Read Join our Treasury Community Treasury Masterminds 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.
The Evolution of Payments: Non-Banks and Corporate Treasury
From Treasury Masterminds In recent years, a notable shift has occurred in the payments landscape, where traditional financial institutions (FIs) are no longer the exclusive gatekeepers of financial transactions. Increasingly, companies outside the traditional banking sector, including tech giants like ByteDance (parent company of TikTok) and Huawei, are obtaining licenses to operate payment services. This trend marks a significant evolution in how payments are managed and underscores the growing role of non-bank entities in the financial ecosystem. The Rise of Non-Bank Payment Providers Historically, payment services were dominated by banks and financial institutions due to regulatory requirements and infrastructure complexities. However, advancements in technology and changing regulatory landscapes have opened doors for non-bank entities to enter the payments space. Companies like ByteDance and Huawei, with their extensive user bases and technological capabilities, are leveraging their platforms to offer integrated payment solutions. Implications for Corporate Treasurers For corporate treasurers, this shift presents both opportunities and challenges, necessitating a shift in skill sets and strategic focus: Looking Ahead: Balancing Innovation and Risk While the entry of non-bank entities into payments introduces innovation and competition, it also raises questions about data security, consumer protection, and market stability. Corporate treasurers must navigate these challenges while driving innovation and growth within their organizations. Conclusion The trend of non-banks and tech companies obtaining payment licenses marks a pivotal moment in the financial industry’s evolution. For corporate treasurers, embracing these changes requires proactive adaptation to leverage new opportunities while navigating regulatory complexities and safeguarding financial interests. As the payments landscape continues to evolve, treasurers play a crucial role in shaping strategies that balance innovation with risk management, ensuring sustainable growth and resilience in a dynamic market environment. 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.
The Dream and Dilemma of Multi-National Digital Currencies: Promise or Pipe Dream?
This article is a contribution from our content partner, Deaglo What Is an MNDC? A multi-national digital currency (MNDC)—a shared digital medium of exchange issued and accepted by multiple countries—carries both significant potential and complex challenges. The Case For MNDCs: Efficiency, Inclusion, and De-Dollarization The main benefit of an MNDC is reduced transaction costs and frictions. Remittance costs fall, and cross-border payments become more efficient and cheaper by bypassing intermediaries and multiple currency exchanges. Also, real-time settlements are a huge benefit. Instant or near-instant clearing and settlement of payments improves cash flow and reduces counterparty risk. It’s perhaps a dream that will never materialize, but a shared digital currency could promote economic cooperation and integration within regions (e.g., LATAM/MERCOSUR, ASEAN). It would definitely boost trade by reducing the uncertainty of currency fluctuations. Hidden Gains: Real-Time Settlement and Monetary Credibility A less obvious but similarly important advantage is that smaller or less stable economies can benefit from anchoring their monetary system to a larger, stable multi-national framework. It can also enhance credibility and reduce inflation in jurisdictions with weak monetary institutions. For the smallest or poorest jurisdictions, MNDCs can help integrate unbanked populations into the financial system through digital wallets. Perhaps the most discussed advantage recently is the desirability of de-dollarization -an MNDC would reduce dependence on the USD and its clearing mechanisms, redistributing global monetary power and reducing dollar dominance. Economic Sovereignty at Stake: The Major MNDC Tradeoff The biggest downside of an MNDC is the loss of national monetary policy autonomy. Member countries would lose control over interest rates, inflation management, and currency adjustments—especially problematic during economic shocks or asymmetric crises. Central banks may not be able to respond effectively to domestic conditions without being able to control interest rates or issuance volume. Central banks would be relegated to operating under a regional monetary council or policy board, similar to the ECB. Central banks would still likely manage liquidity provisioning to and regulation of domestic financial institutions. Balancing privacy rights with AML/KYC obligations would still be left with central banks working with regulators. Policy Gridlock and Regulatory Discord Differing regulatory regimes, privacy standards, AML/KYC requirements, and tax rules could hinder implementation. Looking at how long it took the ECB to become a functioning unit, and how fractious the EU/ECB is today, reaching consensus on governance, issuance rights, and monetary rules among sovereign states is nigh on impossible. Disagreements could even lead to political instability. Digital Risks and Systemic Threats Lastly, there are significant cybersecurity and operational risks. A digital currency introduces new risks of hacking, fraud, or technical failure, with large-scale economic consequences. The infrastructure must be secure, resilient, and interoperable across borders. A Realistic Alternative: The Rise of CBDCs Currently, there are timid forays into national digital currencies. These are so-called stable coins, backed by fiat currency. You could call these National CBDCs (Central Bank Digital Currency). Issuance and management would be by individual central banks. This would give them full autonomy over monetary supply, interest rate setting, and currency circulation. This control would allow tailoring to local economic goals and policy tools. Citizens already familiar with their own central bank are more likely to trust and adopt a national digital currency. Cross-Border Problem Still Unsolved However, they still don’t solve the cross-border problem. MNDCs provide seamless cross-border transactions within member countries. There is no FX risk or cost, which is a huge effect (and would eliminate a great deal of banks’ profits with the disappearance of derivatives!). With a CBDC, cross-border ecosystems are fractured; each CBDC must interoperate via bridges or hubs of some sort (TBD). To many countries’ delights, MNDCs reduce reliance on external currencies like USD or EUR. They could empower regional blocs (e.g., Mercosur, CELAC) to assert economic sovereignty. The BRICs Digital Currency Fantasy: Political Fractures and Monetary Chaos There has been a lot of talk (but no substantial action other than some fraudulent videos released by Russia) about a BRICs currency. This is pure fantasy. BRICs are not a politically homogeneous bloc. They span democratic and authoritarian regimes, with varying levels of openness, transparency, and geopolitical alignment. More importantly, these economies maintain radically different currency regimes that would be impossible to reconcile: There’s already competition among them for control- China, India, and Russia may each want to lead or host the MNDC infrastructure or reserve system. Also, each country has its own national digital currency ambitions (e.g., e-CNY, Digital Rupee, Digital Ruble), which is counter to an MNDC. Establishing a common policy rate or jointly managing digital monetary supply is nearly impossible without deep monetary convergence and political alignment. Additionally, volatile inflation and interest rates in countries like Brazil and South Africa make it doubly hard. The group would need to create a new supranational monetary governance framework. This would face strong resistance, especially from China, Russia and India, who may not want to dilute sovereignty or accept external control. Conclusion: MNDCs Are a Vision of the Future—Just Not the Near One MNDCs of any sort are going to be difficult to implement, solving some problems but causing new ones. An MNDC across the BRICs (or even MERCOSUR) is complete fantasy, given the vast disparities of ambitions, control and other factors. Not to mention, one of the BRICs – Russia – is under heavy sanctions. It’s doubtful that India or China would commit to a currency association under these conditions when they wish to remain integrated into the worlds main financial systems. CBDCs solve some of the problems, and within each country would vastly ease transactions, clearing, and avoid the pitfalls of MNDCs lack of autonomy and control. But they do not solve the problems associated with trans-border transactions. Join our Treasury Community 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….
AI in KYC: The five key questions senior leaders should be asking
This article is a contribution from one of our content partners, Avollone I hardly need to point out the ways in which Artificial Intelligence (AI) has exploded into our lives – both personal and professional – over the past few years. I recently read an EY report that said that 90% of European financial services firms have integrated AI to some extent and 69% expect Generative AI (GenAI) to significantly impact productivity. To take an example from our own industry, GenAI is often put forward as a way to streamline the more labor-intensive and time-consuming tasks in KYC operations. The way I see things, there’s no denying that AI holds gamechanging potential. However, I think it would be foolhardy for executives not to acknowledge its risks, many of which are very complex. One of the reasons for this is that modern AI and machine learning models tend to work within a ‘black box’, with data points working together in ways that are impossible for a human to understand. So executive teams are often left scratching their heads, feeling sure that AI could offer value in their KYC processes but equally not wanting to expose their organisation to unknown risks. To shed some light on the matter, I’ve come up with five key points for leaders considering AI in KYC to discuss with their teams 1. How can AI enhance our KYC processes? Rather than getting sidetracked by shiny new technologies, we advise our customers to think about the problem they’re trying to solve, and how (or if) AI can help. There are a myriad of ways in which AI can be effectively deployed to boost efficiencies within the KYC space. For example, AI can extract tasks and related due dates from an incoming email, generating and assigning sub-tasks for individuals to act upon. It can prompt the collection of data from counterparties – or even source the correct information from public sources. At Avallone, our mantra is that AI should act as a user’s “wingperson”. It should augment, rather than replace, the work of the human. By taking each KYC task case by case, we work with our customers to determine where it makes most sense for AI to streamline their processes. 2. Where can we find experts in AI for KYC? A significant portion of firms say that they have limited GenAI expertise within their workforce, and we know that Machine Learning and AI are typically areas with the widest talent gaps. While it’s important for leadership to take a long-term approach to building key skills within their teams, executives often view this issue the wrong way around. In fact, you don’t need AI experts to determine how best to improve your KYC processes. AI is a tool like any other, and what’s most important is to place that tool in the hands of someone who fully understands the problem you’re trying to solve. You need KYC experts who understand all the complexities within this space, and who also have an overview on where automation could be implemented for the greatest gain and least risk. 3. What are the potential pitfalls in using AI for KYC? Treasury and compliance leaders are right to proceed with caution when using AI. As AI becomes more commonplace within the industry, it’s naturally falling under increased scrutiny by regulators. For example, the European Commission’s recent AI Act promotes principles of safety, ethics, transparency and accountability – requiring transparent model decisioning, explainability and tracking of data privacy. Regulators are penalizing organizations who fail to adopt the correct approach – as they should. Unfortunately, an increasing number of organizations are falling foul to these regulatory requirements. Recently, a Danish bank used AI to close thousands of alerts, however they were unable to explain the AI-driven decision-making process and were forced to re-process them manually. In Germany, a bank was fined €300,000 for not being able to justify why AI rejected a customer’s credit card application. Failure to ensure transparent decision-making can cost an organization in time, money and reputation – often negating the original benefits of AI. Given the significant risks that AI introduces, senior leaders must be sure that there are adequate controls in place to protect both their business and customers – often this involves balancing automation with human oversight. As well as ensuring explainability of all decisions, organizations must also stay updated with the ever-evolving technological and regulatory developments. Executives need to ensure that they have adequate resources to manage this extra workload either within their own teams, or through collaborating with a trusted partner. 4. How – and why – should we balance automation with human oversight? It’s widely acknowledged that AI can perform many tasks faster, more efficiently and more cost-effectively than humans. However, particularly in KYC, human verification is a crucial step. Let’s take a practical example: collecting key financial information from investors to send to your bank. Automating parts of this process can save teams significant time and resources – AI can scan a questionnaire, and source and add missing data points. However, automatically sending this data onto your bank is a step too far. With no human oversight, your organization is left open to data breaches, errors, fines, and untold reputational damage. Not to mention the issues surrounding accountability – who is actually responsible if AI makes your investors’ sensitive information public? None of these consequences are worth the risk. Simply by building in a layer of human approval before sending the package to your bank, you mitigate against these harmful scenarios. 5. How can we integrate AI with our existing and future workflows? At Avallone, we focus on collaborating with our users to understand where it makes most sense to automate. We recommend starting with the obvious, repeatable tasks and building from there. By automating in small and digestible ways, Treasury teams are able to retain full control and accountability while also enjoying AI’s full benefits. And while each AI use case may seem minor, the ultimate impact on…