Launched by The Economist in 2018 as a series of events held in New York, London and Hong Kong and supported by Deutsche Bank, the Global Treasury Leaders Summits switched to a virtual offering last year in response to the pandemic. The 2021 Summit was once more online, with Professor of Economics Nouriel Roubini, author of The Black Swan, and the mathematician and best-selling author Hannah Fry this year’s high profile speakers

Professor Roubini, who was interviewed by Daniel Franklin of The Economist, expressed concerns that the massive fiscal stimulus packages to reboot major economies post-Covid were planting the seeds of the next Global Financial Crisis. However, it would impact even more deeply than the GFC of 2008-09 and be coupled with the return of the ‘stagflation’ that dragged on economies in the 1970s, he predicted.

"Even The Flintstones had a more sophisticated monetary system"
Professor of Economics Nouriel Roubini on bitcoin and other cryptocurrencies

Asked about cryptocurrencies, Professor Roubini was scathing. He has dubbed them “sh*tcoins”, commenting that “even The Flintstones had a more sophisticated monetary system”. He was particularly critical of Bitcoin as “an energy hog and an environmental disaster”. He also expects the strength of the US dollar since Covid-19 became a global pandemic to gradually fizzle out as major economies return to growth.

Treasury Alliance Group Consultant Robert Novaria was moderator for a session titled ‘FX: Learning the Lessons of 2020’, in which Felix Delbruck, Director, Country Risk at The Economist Intelligence Unit (EIU) was joined by Chris Wall, Deutsche Bank’s Global Head of FX Structuring and FX Sales Coverage EMEA and Cigdem Gures Erden, VP and Treasurer of Coca-Cola Europacific Partners.

Delbruck noted that pre-pandemic the US economy was enjoying a lengthy post-GFC period of growth and the dollar was strong. After being briefly derailed by the pandemic, the economy had resumed its growth but the dollar was weakening thanks to the Federal Reserve changing its policy strategy in response to Covid-19 and indicating that it will only slowly raise interest rates. So “all eyes are on the Fed”; the EIU expects it to continue biding its time and not hike rates before H2 2023 at the earliest.

He also sees a potential upside for the currencies of countries that are major commodity producers, which would benefit the Australian and New Zealand dollars, the Russian rouble and the Iranian rial. Countries whose economies have proved resilient to the pandemic should also do well, which perhaps surprisingly includes Brazil despite its massive public health crisis.

Currencies likely to see some softening against the US dollar include the euro and the renminbi, while the rand also looks overvalues as South Africa is likely to emerge only slowly from the crisis. The Federal Reserve’s stance has recently turned a bit more hawkish than before, so the dollar could strengthen in the near term.

Chris Wall noted the pandemic’s impact on both the markets and corporates, particularly those in the most vulnerable sectors such as airlines. The crisis had been very challenging for corporate treasurers, whose working lives had been affected and some clients had gone back to reexamine their hedging policies. It had also encouraged more focusing on how to measure risk and exposure uncertainties; many companies had decided that the cost of leaving open emerging markets FX (EMFX) was too high and were reviewing it on a case-by-case basis.

For Cigdem Gures Erden, as a corporate treasurer her starting point is the sensitivities to the business that arise from FX. Great care is needed when putting a hedge policy in place and Coca-Cola Europacific’s is relatively conservative. The aim is to hedge 70% to 80% of exposures by the first quarter of the year after considering the impact of unhedged positions – one example of which is the Icelandic krona (ISK), which is considered too expensive to hedge.

Covid-19 meant the company had to change its exposures and ended up being over-hedged as a result – underlining the fact that hedging is challenging and requires the right approach to accounting. Coca-Cola Europacific had also assessed the value of risk and portfolio management.

The pandemic had seen many companies seeking liquidity, with corporate treasurers using multi- bank platforms, reported Wall. Automating hedges in a secure way had been made possible and many companies had managed to integrate their risk management and cash management activities so they worked in unison.

Coca-Cola Europacific is completing the £5.5bn acquisition of Austral-Asian bottler Coca-Cola Amatil and Novaria asked how the company handled the cross-border M&A issues arising from the deal.

Erden confirmed that the acquisition created a big risk on the FX side. “For example, you have to control all of the variables that could potentially change in the period between the acquisition first being announced and it finally going through,” she remarked. “We found contingent hedging, which is a relatively new concept, to be particularly useful.”

FX automation “was something that we’re reviewing with our banks to decide which of our activities would benefit. For us, automation means everything being linked to our treasury system.”

Wall said that tallied with the increasing sophistication the Bank was seeing from corporate clients  and a shift to non-committed forms of hedging.

Deutsche Bank’s Global Head of Cash Management, Ole Matthiessen, presented a session titled Making sense of payments. He commented that it was a question on the minds of corporates and banks alike as the pandemic has accelerated the digitisation of various processes. A clear trend was emerging that indicated how the role of banks will change, with payments being at its heart. The new players that were aiming to disintermediate the banks were often focusing their attacks on niche services rather than a more broad-based attack. These new players were attracting much attention and the fintech sector was able to attract a lot of capital from investors in the first half of 2021.

However, he believed that the pendulum was now swinging back and favouring the banks more; particularly those that had an interface with the fintechs. As innovation opened up new business models for corporates, there was an overarching combination of treasury solutions being established with the banks. So the transformation of the business model was key, particularly for those corporates expanding or moving into direct-to-customer (D2C) activities.

"The transformation of business models has led to a more complex and significant role within the company for the treasurer"
Ole Matthiessen, Global Head of Cash Management, Deutsche Bank

Although the business-to-business (B2B) market was still considerably larger than B2C, the use of e-commerce had picked up speed significantly and treasurers were working more directly with customers, which also meant that they had to focus on frictionless and contactless online shopping. The transformation of business models has also led to a more complex and more significant role within the company for the treasurer.

Also undergoing change is the market infrastructure as open banking and real time treasury models are adopted.

Many non-bank financial service providers laboured under far fewer constraints than those imposed on the banks, but were not yet ready to take advantage of this and become large scale operators. Regulators are watching them closely in case they do expand quickly, which contributes to the payments space continuing to be a dynamic and exciting area.

An online event hosted by The Economist and supported by Deutsche Bank, The Global Treasury Leaders Summit EMEA was held on 24 June 2021. The Global Treasury Leaders Summit Americas will be held in October 2021.