There are close to 200 global fiat currencies, a veritable financial Tower of Babel. Add to that cryptocurrencies, and you have unprecedented FX complexity in play when seeking to manage-cross border payments.
Managing the Complexity
How can CFOs manage this level of complexity?
One way is to simplify.
Laurence Capone, CFO of Pipedrive, told PYMNTs she has done just that. Capone is responsible for managing currency volatility across 178 countries. She said one of the CFO’s most important roles is to simplify complexity, and she’s done just that.
“Here’s the simple approach in a complex environment. We do business in 178 countries. So, imagine the number of currencies we would have had to deal with. So the reality is that we mostly do business in two currencies: euro and U.S. dollar.”
Every solution creates another challenge, and this approach to cross-border payments FX is no exception. It creates a balancing act. “You have local countries with different price inflation dimensions. So we try to geolocalize our pricing as much as possible from an FX standpoint, always on two carries.”
In other words, to simplify currency issues and solve for currency constancy, pricing becomes the independent variable in a multifactorial equation that includes inflation rates, currency fluctuations, and competitive pricing pressures.
Limiting Options, Limited Volatility
As of this writing, the euro and British pound are currency stars in alignment. The euro is at parity with the dollar and the pound is at $1.18. While these major currencies are not without volatility, they are generally among the most stable.
Since the U.S. Federal Reserve began raising interest rates on St. Patrick’s Day 2022, the luck of the dollar has been on a roll — it has appreciated 10% against the euro.
Energy is an example of a market that simplifies currency issues by limiting the basket. For example, the dollar is still the primary petrocurrency — one of the main factors anchoring the greenback’s status as the world’s reserve currency.
Smaller Markets, Tailored Solutions
For companies that decide to tackle the challenge of multiple currencies, there are many options available, including established players as well as startups. Payment orchestration platforms provide the agility and improved conversion rates (with improved margins) critical in competitive markets involving cross-border transactions.
In emerging markets, B2B cross-border payments face challenges including the difficulty of making payments to suppliers across multiple currencies belonging to these economies, while minimizing foreign exchange (FX) volatility.
Companies such as London-based FinTech VertoFX help businesses overcome these challenges through B2B currency exchange marketplaces and multicurrency wallets, which allow small and mid-size clients to convert money from one currency to any of 30-plus other currencies and hold the new currency in their wallets until they are ready to make a payment.
As inflation continues to rise worldwide, the ability to hedge against FX volatility is no doubt a key factor that will contribute to driving business growth in these uncertain economic times.
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