Looking Beyond the Dollar
Your guide to navigating global trade shifts and the complex landscape, and succeeding in a multi-currency world.
We are witnessing a subtle yet significant shift in how businesses conduct global transactions. The USD-centric approach is now facing increasing headwinds driven by a combination of geopolitical shifts, economic developments, and technological advancements.
While these changes bring new opportunities, they will also compel SMEs to rethink their strategies and truly embrace a multi-currency mindset to thrive.
Challenges SMEs will face in the coming years
Increased non-USD transactions: Businesses need to be better prepared to handle payments and invoices in currencies other than the US dollar.
Increased financial risk: The most significant challenge is managing the fluctuations in exchange rates.
New operational complexities: This involves navigating different payment systems and regulations across borders, which makes global cash flow management even more complicated.
Adapting to new payment systems: This can involve challenges such as integrating with existing infrastructure and diverse global payment networks.
Trends shaping the future of global trade
Many events, including new payment systems, diversification to other currencies, US policy shifts, positive reforms outside the US, and many more, will shape the outlook of global trade. However, two trends that will particularly stand out are:
- Accelerated de-dollarisation of global supply chains
- Disruption to global trade corridors
Factors driving the de-dollarisation
Rising geopolitical risks: An increase in American isolationism, rising international tensions, financial sanctions, and tariffs are prompting countries to seek alternatives that bypass the US dollar.
Diversification: While the US dollar remains the de facto currency held by central banks, we are at least seeing an apparent spreading of risk and diversification into other currencies.
New payment infrastructure: New financial infrastructure and payment systems can now facilitate faster, cheaper, and more secure cross-border transactions without relying on US infrastructure.
Economic competition: Since 2000, GDP growth in emerging markets and developing economies has outpaced that of advanced economies, with this trend expected to continue.
Local currency settlement: A significant driver of dedollarisation is the increasing desire among countries to settle international trade transactions in their local currencies.
Forward-looking strategies to help you prepare for the future
Measures to mitigate the FX risks
Operating in multiple currencies significantly increases your vulnerability to FX risk. Leading to margin erosion, difficulty in forecasting, and hidden costs.
Action points for your business
- List the countries you buy from and sell to, and understand which currencies your partners use and prefer in these key regions.
- Map out how money flows for your major currency pairs.
- Calculate the volume and frequency of transactions you currently conduct in each currency.
- Estimate how these volumes might change based on growth plans, trends, or evolving partner preferences, and how this would impact your profit margins.
- Formally document your company's tolerance for FX risk (risk appetite). Who is responsible? What tools are approved? What budget rate do you wish to protect?
- Use an appropriate hedging product. The choice of product and its composition will depend on your needs, risk tolerance, and goals.
Strategies to optimise cross-border payments
Businesses encounter various challenges when making and receiving international payments in multiple currencies, including delays, high fees, navigating regulatory complexities, limited access to support, and payment fraud, among others.
Action points for your business
- Audit your current setup to identify areas to optimise processes and streamline payments.
- Look beyond traditional providers to identify experts who can offer better rates, lower fees, faster payments, and greater transparency.
- Utilise payment schemes such as ACH (US) and Faster Payments (UK), where possible, as they are typically faster and cheaper than wires.
- Connect your payment platform with accounting software (e.g., Xero, NetSuite) to improve your financial workflow.
- Consider multi-currency accounts to hold, receive, and pay out various currencies from a single account structure, minimising conversions and fees.
- Set measurable goals to track progress with KPIs. Once you set goals, regularly assess performance against goals.
Evaluating the local currency opportunity to go global, but operate like a local
When you collect or pay locally, you can expect cross-border payments to land on the same day without any unnecessary deductions.
Benefits for buyers: Paying suppliers in their preferred currency reduces the impact of FX fluctuations on their cash flows. This can help you secure stable pricing, build stronger relationships with them, and improve communications.
Benefits for sellers: Offering your customers the option to pay in their preferred currency gives them a sense of confidence and security. Plus, you avoid unnecessary deductions that can come with wires.
Practical ways to improve supply chain processes
Global commerce needs to navigate complex supply chain challenges to thrive during this uncertain time, which includes increasing inflation and volatility, supply chain restructuring, and difficulties with demand forecasting and inventory planning.
Action points for your business
- Understand the currency needs and preferences of your key suppliers.
- Reduce reliance on single countries or currency pairs to mitigate concentrated risk.
- Tariffs can lead to sharp fluctuations in currency pairs. Implement a proactive risk management process when dealing with these currencies.
- Utilise real-time data analytics for effective inventory and shipping management.
- Create potential future global economic and geopolitical situations, and plan how your supply chain would react.
- Conduct a re-examination of the entire trading process, develop contingency plans, and prioritise adaptability and responsiveness for potential disruptions.
Helping you succeed in a multi-currency world
Contact us at info@ebury.com to explore our solutions to help you thrive in a multi-currency world.
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