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Citi Perspectives
| Q1/Q2 2015
a multi-currency pool for its EMEA
operations. By automating the FX
conversion and draining of pool
funds to the U.S., 90% of the cash
in Europe is now available to the U.S.
— including U.S. dollars in Israel for
the first time.
Regulatory change is another driver
behind the focus on multicurrency
cash pools. According to Elms, a
common request is to include the
renminbi as part of a multicurrency
pool structure, not only because it
is an additional currency that can
help to offset negative yields, but
also because banks such as Citi
have grown their capabilities in this
currency (since it has been gradually
liberalized by the Chinese authorities)
to ensure that locally generated
liquidity that was previously trapped
in-country can now be brought up
into a company’s central liquidity
structure, even through automated
sweeping options.
“Automation is another huge theme
in this new liquidity environment,”
Elms continues. “We are seeing
more and more requests to set up
actions that occur without manual
intervention when a particular
currency — typically a negative
yielding one — reaches a specified
amount.” Once the level is hit, Citi
can then help to push some of that
liquidity into a different destination;
whether that be a higher yielding
account with a longer maturity, or a
money market fund, for example.
Embracing the positive
“These kinds of innovations are only
going to become more popular as
people adjust to the new normal,”
predicts Elms. And over the last
five years, treasurers have already
demonstrated great flexibility in
their mind-sets, adjusting their
investment comfort zones to include
instruments such as tri-party repos
and secured lending, so thinking
outside the box has almost become
part of the job description for those
at the top of the profession.
Nevertheless, if innovation is to
succeed, it must be built on solid
foundations — in this case best
practice. Now is not the time for
treasurers to start undoing all of the
hard work they have put in post-
crisis, centralizing, rationalizing
and automating their liquidity
management. Rather, this is the
time to examine how external
market influences, such as negative
interest rates, actually present
opportunities for further efficiency.
