Treasury and Trade Solutions
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daily liquidity from global liquidity
structures in response to the lower
rate environment,” says Elms. After
all, why should a company move
balances away from a jurisdiction
and incur an FX cost, only to be
impacted by the negative rate
environment?
“As long as there is complete
visibility over the cash and at a
near-term use of that local liquidity,
then leaving it in-country may be
the best course of action,” he notes.
“That said, it is still fundamentally
important that the liquidity structure
the company has in place allows the
treasurer to move and mobilize that
cash when needed — not because of
the level of geopolitical unrest today.
Trapped cash is a growing concern
in politically unstable countries, as is
significant FX volatility, so having a
flexible and nimble liquidity structure
is now more important than ever.”
Offsetting the negative
When we overlay all of these
challenges — the negative rate, low
yield environment; the geopolitical
challenges which are creating
further FX swings, sovereign and
counterparty risk concerns; and
of course the liquidity constraints
of Basel III, this creates a perfect
environment for clients to sit down
around the table with their banks and
discuss the optimal liquidity structure
that brings together the right mix of
cash management, investment and
the risk management tools, while
observing best practice.
A good example of this is the work
Citi has been undertaking with
clients to help them meet their goal
of capital preservation in this era of
negative rates. From an investment
point of view, we have introduced
smart investment options, such
as the minimum maturity deposit,
which provides enhanced returns
over short tenor time deposits with a
minimum notice period before funds
can be withdrawn.
Elsewhere, multicurrency cash
pools — as part of a global liquidity
structure — are proving extremely
popular among Citi’s clients as
a means to gain liquidity and
operational efficiencies, while
also replacing or at least reducing
the need for FX swaps. With a
multicurrency pool, it is possible to
offset charges in certain low-yielding
currencies by changing the mix of
the company’s assets and increasing
those currencies which have a wider
spread. Furthermore, for the day-
to-day operating business, rather
than having to spend resources and
investment dollars executing FX
transactions, they can effectively
use the multicurrency cash pool as
an implicit way of executing their FX
swap transactions. With that in mind,
we are seeing double-digit growth
in the adoption of cash pools, in
particular the multicurrency
cash pool.
Recently, Flextronics, a leading
end-to-end supply chain solutions
company, worked with Citi to create
“This is the
new normal
— and it is this
environment
that treasurers
and banks
need to be
comfortable
operating in.”
