Treasury and Trade Solutions
22
With ongoing speculation around
the future of the eurozone and
crisis-driven regulation still being
implemented across the financial
sector, any casual observer could
be forgiven for thinking that little
has changed in the macro business
environment over the last five years.
But as any treasurer will tell you,
nothing could be further from
the truth.
The first and perhaps hardest hitting
change — at least for those in the
corporate treasury profession — is
the introduction of negative interest
rates. Whilst interest rates have been
extremely low across Europe and the
U.S. in recent years, the move by the
European Central Bank (ECB) in June
2014 to lower the deposit rate from
zero to -0.1% took us into a new phase
in the interest rate cycle.
This triggered a domino effect of rate
cuts across Europe with the Danish,
Swedish and Swiss National Banks all
choosing to follow suit in an effort to
protect their currencies and reduce
market volatility. For treasurers, the
impact of these changes in monetary
policy is wide-reaching. We are
entering new territory when it comes
to the traditional treasury priorities of
security, liquidity and yield. Liquidity is
being challenged by regulations such
as Basel III, and yields on investments
and currencies are scarce, but capital
preservation is even trickier.
Take investment policies, for example.
These typically dictate that treasurers
must retain capital and maintain
the value of that capital, but doing
so in a world where deposit rates
are suddenly negative poses a real
challenge. As a result, many treasurers
are left questioning the validity
of their investment policies
and priorities, as well as their
accounting practices.
Treasurers are also still wondering
where interest rates will go next, as
they do not appear to have bottomed
out yet. As Steven Elms, Head of
Industrials Sector Sales, Treasury
and Trade Solutions, Citi, observes,
“this uncertainty around rates is a
genuine challenge for corporates
trying to navigate the new business
environment. Not only are they trying
to understand where the policy moves
are heading but also as to how banks
OPTIMIZING LIQUIDITY IN A
SHIFTING WORLD
From negative interest rates to significant currency volatility and
geopolitical risk, today’s treasurers are operating in largely uncharted
territory. Exploring and exploiting this new liquidity landscape will require
skillful navigation — and an open mind.
Amit Agarwal
EMEA Head
of Liquidity
Management
Services, Treasury
and Trade
Solutions,
Citi
