International Currency Risk

"Key to the slump in government finances has been the energy market. After surging to a high of $120 last summer, oil is now trading at around $80 a barrel and a price cap introduced by the West has limited how much the Kremlin can make from sales. The European Union introduced an embargo on Russian crude oil in December and on oil products in February 2023. The Saudi Arabia-led Opec bloc and its allies including Russia have tried to push up the price of oil by cutting production but the Western cap on oil prices has limited the impact of these actions on Kremlin finances. Russia’s oil and gas revenues are forecast to drop by 43pc this year as a result, according to the Kyiv School of Economics. At $198bn, income from fossil fuels will still be above pre-war levels. However, the cost of the war in Ukraine is more than soaking up the extra revenue. “We have seen a massive pickup in spending likely related to the war,” says Elina Ribakova, non-resident senior fellow at the Peterson Institute for International Economics. “They pretty much filled the whole deficit that they had planned for the year.” Sanctions and the exodus of Western businesses has seen Russian export earnings fall by a third in the first six months of the year and the balance of trade has plunged by 70pc. The drop in exports has hammered the value of the rouble. It has lost 39pc of its value against the dollar and 47pc against the euro so far this year. “For me the currency is the key bellwether,” says Ash. In the initial phase of the war, the Russian government intervened to bolster the rouble. “They were eager to have a strong currency to imply that sanctions weren’t working,” says Ash. “Now they need a bit of help. They are trying to bolster their own FX reserves. That suggests they don’t have as much liquidity as people think they could have. It is clearly a sign that things are not great.” A tumbling rouble is stoking inflation. The Bank of Russia on Friday raised interest rates by 1 percentage point to 8.5pc as policymakers warned that underlying inflation had “exceeded 4pc in annualised terms and is still on the rise.” The central bank said inflation was being driven in part because of “the limited availability of labour resources”. Just as Russia is losing money, it is losing its workforce. This is happening on several fronts – not only are men getting conscripted and sent away to fight, large swathes of the working population have left for fear of being sent to war. “The lowest estimate from the demographers that I have seen is that 500,000 people have left. Our own estimate is one million,” says Ribakova. “Any talk of diversification, or creating a higher quality of life, that is all out of the window,” she adds. Putin is of course reluctant to admit any of this and there is strong suspicion that official data on the health of the Russian economy is being massaged to paint a rosier picture."

Managing Multiple Currencies in Banking: A Comprehensive Guide to Foreign Exchange Risks and the Treasury Function The treasury function within a banking institution serves a crucial role, one of which includes the nuanced task of managing foreign exchange risks. Moorad Choudhry offers valuable insights on this, stating, "Currency risk exists due to adverse movements in exchange rates...One way that banks attempt to address this risk is through matching of assets, liabilities and cash inflows in the same currency. Where this is not possible, then the usual course of action is to use the wholesale inter-bank market to hedge the FX mismatch" (Choudhry, 2018, Anthology, p. 105, Wiley). Nature of Foreign Exchange Risks: Foreign exchange risk manifests itself when a bank's financial assets or liabilities are denominated in foreign currencies. Any fluctuations in exchange rates could affect the bank's financial stability, thus necessitating a realistic strategy to mitigate these risks. Importance of Hedging Strategies: Contrary to common perception, hedging strategies are not simply optional tools. They are essential elements that support a treasury department in offsetting potential losses triggered by unfavourable currency exchange rate movements. Regulatory Oversight: Regulatory compliance in foreign exchange risk management is far from a trivial concern. It amplifies the need for a transparent and effective strategy, adding an additional layer of importance to the treasury function. Technology and Foreign Exchange Risk Management: Advancements in technology present an advantageous opportunity for banks. Tools that facilitate real-time tracking of exchange rates and advanced financial modelling techniques greatly aid banks in making informed decisions. Monitoring and Revaluation: For an accurate representation of risk, prudent monitoring of foreign exchange positions is non-negotiable. This should be conducted periodically to ensure the effectiveness of hedging strategies, allowing for timely adjustments as required. Integration with Overall Risk Management: It is important to realise that foreign exchange risk does not operate in isolation. It is intrinsically linked with other types of risks, such as interest rate or liquidity risk. Therefore, a comprehensive approach to risk management should encapsulate all these interconnected risks, highlighting the multifaceted nature of modern banking operations. In essence, effective management of foreign exchange risk is vital for a bank's treasury operations. The role it plays in safeguarding a bank's assets while fortifying its market position cannot be downplayed. After all, the efficient management of these risks not only acts as a shield but also enhances a bank's competitive edge in a frequently volatile market. #Banking #TreasuryManagement #ForeignExchange #RiskMitigation #RegulatoryCompliance

Russia Is Now Selling Its Gold Reserves a Clear Sign of Monetary Stress Russia’s Central Bank has started selling sovereign gold directly to the domestic market a policy shift we haven’t seen before. Banks, state companies and investment firms can now buy gold straight from the state. Why? Because Moscow is running out of financial room. National Welfare Fund liquid assets dropped from $113.5B (2022) to $51.6B (2025) Gold reserves fell 57% Sanctions continue to bite The ruble needs support The budget needs cash urgently To stabilize the system, Russia may sell: 230 tons of gold in 2025 (~$30B) 115 tons in 2026 (~$15B) Short-term, this strengthens the ruble. Long-term, it weakens Russia’s financial resilience by draining its most trusted reserve asset. At the same time, emerging-market central banks are buying gold aggressively to diversify away from G7 financial risk — especially as talks continue about using Russia’s frozen assets. Out of the $300B frozen, $243B sits in Europe. The message is unmistakable: Gold is no longer just a store of value it’s a geopolitical weapon.

Russia's macroeconomic resilience in 2024 hides deeper vulnerabilities as war drains its financial reserves. KSE Institute's latest report on the impact of sanctions on the Russian economy reveals a dual-layered narrative. On the surface, Russia's economic resilience appears robust, driven by strong fiscal revenues, a stable trade balance, and effective measures to support the ruble. However, beneath this facade, deepening structural imbalances are evident. Specifically, the depletion of the National Welfare Fund's liquid assets, reliance on the shadow fleet to evade energy sanctions, and the looming fiscal pressures suggest a brittle foundation. The recent Ukrainian offensive in Kursk could further strain Russia's resources, exacerbating costs for defense operations and triggering heightened economic uncertainty in the affected regions. The report outlines three areas of robustness. 1. External environment improves for Russia – In the first half of 2024, Russia's trade balance reached $68 billion, a 19% increase from the same period in 2023. The overall current account surplus rose to $41 billion, a 74% increase. Weaker non-oil exports were offset by lower imports and a smaller income and transfers deficit. Actions by the CBR and improved foreign currency inflows stabilized the ruble. 2. Energy sanctions face challenges – In June 2024, almost 90% of Russian seaborne crude oil exports were transported by shadow fleet tankers, further weakening the G7/EU price cap regime. As a result, Russian oil export earnings in the first half of 2024 increased by 22% compared to the same period in 2023. 3. No substantial fiscal constraints – In the first half of 2024, Russia's federal budget deficit reached 929 billion rubles, 58% of the full-year target and 60% less than the same period in 2023. Higher revenues from oil and gas (+69%) and non-oil and gas (+27%) more than covered the increased spending (+22%) due to higher war costs. However, war and sanctions have created meaningful pressure on macro buffers, building up longer term vulnerabilities. After spending almost $54 billion of the NWF’s liquid assets since the start of the full-scale invasion, only gold and yuan remain, which cannot easily be used at scale to finance the budget. This would force the regime to rely on higher domestic debt issuance, driving up borrowing costs. KSE Institute calls for a robust escalation in the enforcement of energy sanctions, particularly by expanding the designation of shadow fleet tankers that Russia uses to bypass the G7/EU oil price cap. The Institute emphasizes the need for increased international cooperation to freeze the $218 billion in foreign assets accumulated by Russian entities since the invasion. Additionally, it urges vigilant monitoring and strict enforcement against sanctioned vessels to uphold the integrity of the sanctions regime, thereby weakening Russia's economic capacity to sustain its war efforts.

Indian importers of Russian #oil, incl. state refiners that are fully aligned with government policy, are reportedly increasingly relying on the Chinese #yuan to pay for Russian crude. Why is this important? The shift to CNY stems from a fundamental problem: Western sanctions have severely limited Russia's access to the USD-based international financial system. Many Russian banks, incl. all the Top-10, are under full blocking sanctions; a few dozen were de-SWIFT'ed; some just lost access to USD clearing. The UAE dirham (AED), while technically available, poses similar problems. AED is pegged to USD (AED 3.67=$1) & UAE-based banks are deeply integrated into the dollar financial system. They face the same secondary sanctions pressure as Western banks when processing USD-denominated transactions for Russian counterparties. This makes AED payments nearly as problematic as direct USD transfers. There is another angle to it. #India initially attempted to pay for Russian oil in Indian rupees (INR), with enormous INR reserves accumulating on the Russian side, reportedly >$40bn stuck in Indian banks by mid-2024. India's exports to Russia are relatively limited (pharmaceuticals, tea, machinery), nowhere near sufficient to offset the massive oil payments #Russia receives monthly. Moscow doesn't want rupees it can't convert or use. INR is not freely convertible internationally & has limited acceptance outside India. Russia has no intention of building up INR reserves it can't liquidate. India's capital controls & thin forex markets make offloading large INR positions extremely difficult without crashing the currency. Unlike INR, CNY can be used across a much broader geography. Russia can spend CNY in China (its largest trading partner accounting for ~32% of all Russian imports in 2024), use it for transactions with Central Asian states, Iran & increasingly other BRICS+ members. Using CNY means less conversion risk, reduced transaction costs & few regulatory complications. The PBOC has established yuan clearing arrangements with dozens of central banks. Also, offshore yuan (CNH) markets in HK, Singapore & London provide depth for large transactions. Indian banks (often state-owned, e.g., State Bank of India or Punjab National Bank) facilitate INR-CNY conversions through the onshore/offshore markets. India has swap arrangements with China & Indian banks maintain correspondent relationships with Chinese FIs. Indian refiners transfer yuan to Russian oil traders' accounts in Chinese banks or in Russian banks with Chinese correspondent relationships. Critically, these transactions clear through the Cross-Border Interbank Payment System (CIPS), China's alternative to SWIFT. Russian entities use the yuan to purchase Chinese goods directly, pay for imports from 3rd countries, convert to other currencies as needed or hold as reserves. Russia's central bank keeps ~40% of its reserves in CNY, up from negligible amounts pre-2022. https://cutt.ly/0r2Sd42R

The petrodollar is sinking internationally, while the U.S. government studiously ignores the warning signs. =========================== "Alongside the BRICS de-dollarization plans, the Chinese yuan has officially overtaken the US dollar as the top traded currency in Russia. Indeed, the currency has now surpassed the greenback as the most prominent foreign exchange in Moscow according to a Reuters report. The data shows that the yuan has accounted for more than 42% of currency trades in Russia. Alternatively, that figure outshines the US dollar share of 39.5%. Moreover, the figures show that the trading volumes for the yuan had tripled to reach $385 billion in 2023. ... Over the last year, the global perspective has shifted greatly. Specifically, the BRICS economic alliance has led to increased efforts to diversify its economic perspective. Subsequently, it has greatly affected the US dollar, and the trust in its continued status as a global reserve asset. Now, the BRICS alliance has continued to embrace that message, as the Chinese yuan has overtaken the US Dollar in Russian trade. Indeed, the former has edged out the greenback to be the primary foreign currency traded in Moscow. The development continues to showcase the interconnectivity of the economic alliance, and its embrace of its local currencies. ● Russia’s move away from the US dollar was originally borne out of necessity, derived from Western-imposed sanctions. ● Therefore, many of its BRICS allies rejected the currency alongside it, influenced by fear of relying on a currency that could be weaponized. ● However, that now appears to be a perspective shared globally. Throughout the year, Central Banks across the globe have increased gold acquisition and turned to digital asset developments. This has been a byproduct of US dollar fatigue derived from both its weaponization capability, and its fragility amidst macroeconomic circumstances. Conversely, both Russia and China have increased reliance on each other amid the growing prevalence of the alliance. In 2023, bilateral trade between the countries increased to $240 billion. Moreover, that was an increase of more than 26% from a year prior. This year should see that number only continue to grow." https://lnkd.in/g6jZ82WR

Dear Accountants & Finance Analysts, With the current inflation rate you may not need much grammar to justify the variances in Management and Financial Reports, either against budget or prior periods. However, as professionals we can recommend strategies to mitigate the impact of inflation and foreign exchange (FX) fluctuations on business operations, this requires a multifaceted approach that addresses both short-term challenges and long-term risks. Here are some strategies to consider: - Price Flexibility: Build flexibility into pricing strategies to accommodate changes in input costs due to inflation or FX fluctuations. - Diversify Supply Chains: Establishing multiple suppliers across different geographic regions can help mitigate the impact of FX fluctuations and supply chain disruptions caused by inflation. - Hedging Currency Risk: Implementing hedging strategies, such as forward contracts or options, can help protect against adverse FX movements. - Long-Term Contracts: Negotiate long-term contracts with suppliers or customers to provide stability and certainty in pricing and revenue streams. - Localized Production: Consider shifting production or sourcing activities closer to target markets to reduce exposure to logistics and transportation costs. - Revenue Diversification: Diversify revenue streams across different markets or product lines to reduce reliance on a single currency or market. By adopting an holistic approach to managing inflation and FX fluctuations, businesses can minimize the impact of economic volatility on their operations and maintain resilience in time of uncertainty. #Finance #Accounting #BusinessStrategy #InflationMitigation #FXFluctuations #SupplyChainManagement

FX & Interest Rate Risk Management Cheat Sheet. In today’s volatile markets, FX and interest rate risks are two of the biggest threats to corporate liquidity and competitiveness. If left unmanaged, they quietly eat away at margins, distort valuations, and erode investor confidence. Here’s a cheat sheet that summarizes the basics: What’s at Stake? FX Risk → Currency swings impacting inflows & outflows. Interest Rate Risk → Rising/falling rates affecting debt, investments, and funding costs. Implication → Poor management = margin compression + loss of competitiveness. Best Practices for FX Management Track daily FX updates + central bank circulars Build 3-scenario forecasts (Base / Pessimistic / Optimistic) Maintain multi-bank relationships for flexibility Set rate-trigger alerts for procurement & payments Hedging Toolbox Forwards → Lock in future rates (binding, margin required) Options → Flexibility + downside protection (premium cost) Swaps → Bridge short-term liquidity gaps without long-term FX risk Managing Currency Volatility Transactional Exposure → FX on imports/exports Translational Exposure → FX in financial reporting Economic Exposure → FX shifts that alter competitiveness long-term Practical Strategies Natural Hedging → Match inflows/outflows in same currency Invoicing Strategy → Bill exports in hard currency, settle local costs in NGN FX Budget Rate → Set internal benchmark (e.g., ₦1,550/$ vs ₦1,500/$ market) 🔔 Quarterly Review → Adjust assumptions, align with Procurement, Sales & Finance Interest Rate Risk to Watch Repricing Risk → Maturity mismatches Yield Curve Risk → Short vs. long-term shifts Basis Risk → Misaligned benchmarks (e.g., SOFR vs MPR) Optionality Risk → Prepayment & early call exposure Measurement Tools → Gap Analysis | Duration | Stress Testing (+100–200 bps scenarios) Interest Rate Mitigation Swaps → Convert floating to fixed Caps & Floors → Guardrails on borrowing costs Diversify Debt → Balance fixed vs floating Natural Hedging → Align assets & liabilities Key Takeaways for Treasury Leaders Be proactive, not reactive → Run risk simulations. Embed flexibility → Combine natural hedges + financial instruments. Local context matters → Central bank policies can shift risk overnight. Communicate → Align Finance, Sales & Procurement on risk strategy. Question for you: Which risk do you find harder to manage in your organization - FX volatility or interest rate hikes? ♻️ Repost & Share!

Hedge me if you can! 💰 Recent tariff-driven FX drama has exposed a pretty stark divide among European treasury teams – between those who hedged early and those who were caught unprepared. My latest article for Trade Treasury Payments (TTP) (link in the comments) reveals what's happening inside treasury departments across Europe, through the eyes of treasury leaders, and industry experts Chris King and Marita Cavalcanti. As one European treasurer commented: "It’s exhausting, honestly. One minute we’re being hit with new tariffs, the next we’re told they've been reversed or renegotiated. We don’t know how to hedge for the best. But we do know that being hedged in some way is the correct path forward." What’s clear is that ‘wait-and-see’ approaches are faltering. So, this article explores the practical moves treasurers are making (or should be considering) instead. Here are a few of the key takeaways: 💵 Options are becoming more popular, but require proper consideration. The debate isn’t always whether to hedge, it’s how much flexibility you can afford. 💵 Pre-hedging is back on the table. Treasurers are selectively hedging known exposures, from refinancing to M&A in order to stay ahead of avoidable risk. 💵 Automation is becoming non-negotiable. Real-time FX visibility tools and non-manual workflows are moving from ‘nice to have’ to core treasury infrastructure. 💵 Dollar invoicing is being challenged. While USD invoicing still dominates, some European exporters are trialling local currency billing. 💵 Wider capital strategy is also under review. Geopolitical fragmentation is prompting non-US treasurers to look beyond FX. Questions around access to capital, funding location, and financial resilience are gaining in urgency. Of course, it’s impossible to know what markets will do next. But as Chris King says, it’s important to “be proactive and be dynamic about the new regime – whether you like it or not!" Hope you enjoy this piece and I'd love to hear how you're dealing with this. Comment or DM me!

How to sustain your business in a depreciating currency environment! Doing business in a country with a depreciating currency presents challenges, but it's possible to adapt and thrive with the right strategies. Here are some steps to consider: 1. **Hedging Strategies:** Consider using financial instruments like forward contracts or options to hedge against currency depreciation. This can help stabilize your cash flow and protect your profits from adverse exchange rate movements. 2. **Diversify Revenue Streams:** Expand your business to other markets or regions with more stable currencies. This diversification can reduce your dependence on a single currency's performance. 3. **Localize Costs:** Whenever possible, source raw materials and services locally to minimize exposure to currency fluctuations. This can also reduce the impact of exchange rate changes on your production costs. 4. **Adjust Pricing:** Monitor exchange rates closely and adjust your pricing strategies accordingly. You may need to periodically raise prices to compensate for currency depreciation. 5. **Offer Currency Flexibility:** If feasible, offer customers the option to pay in multiple currencies, which can mitigate the impact of currency fluctuations. 6. **Maintain Strong Financial Controls:** Implement rigorous financial management practices to control costs, optimize working capital, and ensure efficient cash flow management. 7. **Explore Export Opportunities:** If your products or services have international demand, explore exporting to markets with stronger currencies. This can provide a natural hedge against currency depreciation. 8. **Long-Term Contracts:** Consider negotiating long-term contracts with customers or suppliers that include fixed exchange rates or pricing adjustments based on agreed-upon criteria. 9. **Diversify Currency Holdings:** Hold a diversified portfolio of currencies or foreign assets to spread risk and provide a buffer against currency depreciation. 10. **Consult Experts:** Seek advice from financial experts or currency risk management specialists who can provide insights and strategies tailored to your specific business situation. 11. **Stay Informed:** Keep abreast of economic and political developments that can impact exchange rates. 12. **Build Strong Relationships:** Maintain good relationships with your bankers, customers and suppliers. 13. **Scenario Planning:** Develop contingency plans for different currency depreciation scenarios, allowing you to respond quickly to changing market conditions. 14. **Invest in Efficiency:** Invest in process optimization and cost-cutting measures to maintain profitability even in the face of currency depreciation. 15. **Review and Adapt:** Continuously review your strategies and adjust them as needed. Remember that currency depreciation is often a natural part of economic cycles.