Corporate treasurers see the benefits of blockchain
Corporate treasurers are putting forward the case for using blockchain in their daily operations, weighing the benefits and potential drawbacks.
The practical implications of using blockchain and cryptocurrencies were debated from the treasurer’s perspective at a roundtable on the future of corporate banking, hosted by SEB in London in September.
While banks have been trumpeting their blockchain proofs of concept and trials, Fraser Campbell, group treasurer at GKN, says he has seen banks being reluctant to deploy the technology.
Banks might not be moving fast enough to explore its practical uses, he says, adding: “Banks can be slow with or object to change. There have been times when they have used regulations against new entrants. Rather than working against new companies and technology they should be embracing and supporting market change.”
For corporates, there are applications of blockchain and cryptocurrencies that might reduce costs, but these are seemingly not being prioritized by banks. One intriguing opportunity, for example, is using cryptocurrencies as an international payments method.
Campbell explains: “There’s the possibility that using cryptocurrency could avoid FX if it were to become commercially acceptable as a form of payment between two entities. Should this be possible, it would certainly get the interest of treasurers. If it could build momentum, it would be a very interesting prospect.”
Operating in multiple currencies has a substantial impact on the operational capabilities of, often, very small treasury teams, using up valuable resources.
“Transacting in a number of currencies has an impact on the treasury’s ability to work efficiently," says Campbell. "FX work often has some form of manual intervention, when that time could be deployed to other parts of the business. Further automating this process becomes an attractive proposition.”
Having the risk and the work involved in foreign-exchange transactions mitigated could free up the workload of treasurers, leaving more time to spend on developing new working practices or exploring funding options.
However, there are reservations.
Jean-Marc Servat, chairman of the European Association of Corporate Treasurers (EACT), tells Euromoney he has concerns about the use of cryptocurrencies as a method of transacting funds.
“Cryptocurrencies at present cannot be looked at as currencies," he says. "The monetary mass is not controlled and they are not a good means to store value. There are issues, and exchanges like Mt Gox went bankrupt.
“To use the currency as a means of payments comes with risks. There is a lot of risk in the volatility of the coin, as its value has been seen to greatly fluctuate.” Even if cryptocurrencies were used as means for cross-border payments, Servat says there would still be costs when the tokens would need to be off-boarded.
"There would still be a need to settle off at some point, and then there would be transaction fees attached," he says. "While the technology is certainly interesting, it comes with a lot of uncertainties."
At present, the costs associated with conventional cross-border transactions are a considerable issue to treasurers.
“It could be looked at as helping with facilitating payments," says Servat. "The market is in the middle of a payments revolution and regulations like PSD2 will further this change. It is interesting to consider how it could make changes in the payments world.
"Changes need to be made there, but it is still being worked out the best form for this to take. What we want to see is a revolution in payments and FX, both in terms of increased transparency and reduction of fees."
However, GKN's Campbell is realistic on the overall possibility of a conversion to using cryptos as transactional currencies.
He says: “For the application of blockchain to work, it needs to be accepted in the system. Once it has gained traction then the positive points such as simplifying FX – through the use of a cryptocurrency for payment between two entities – and trade finance can come to the fore.”
EACT's Servat says the overall use of distributed ledger technology is of interest in the certainty it could provide to documentation, adding: “It would be beneficial to test the technology to see if it can be trusted to take on the credit risk. Trade finance would be an interesting proposition in its use.
"Something like title exchange represents a market of reasonable size, as there is only a finite number of large cargo vessels in the world. Such a market might be more suitable considering the computational power needed for mining transactions."