Uncertainty is, in many ways, one of the only certainties in business. It doesn’t take much to find experimental evidence of this somewhat-pithy statement; the last two decades’ many chaotic lurches from one international incident to another should suffice as proof, whether you examine the banking crisis of 2008, the coronavirus pandemic of 2020, the Russo-Ukrainian war or the various industry shocks experienced as a result of failing international trade routes.
Now is a time of especial uncertainty, as geopolitical tensions between Russia and the West continue to rise; as far-right conservative governments seize control across Europe and in the US; as our own government makes reflexive changes to prospective financial policy in the wake of falling public support. Amid all this uncertainty, and as an internationally-operating business, the bare minimum you should want to protect is the money you move from place to place. What follow are some essential strategies for protecting value from geopolitical events.
1. Establish A Comprehensive FX-Transfer Policy Linked ToGeopolitical Triggers
International businesses, unavoidably, deal in a variety of currencies – and are, resultingly, beholden to foreign exchange rates wherever money is transferred across borders or between regional accounts. The viability of these rates depends heavily on geopolitical factors impacting related regions; where a trade dispute results in tariffs, a currency’s value can be negatively impacted accordingly. Risk management is the operative term here, typified by the institution of clear procedures relating to cross-border transfers when geopolitical risk spikes.
2. Diversify Transfer Currencies And Payment Corridors
Diversification is a fundamental tenet of any international enterprise’s risk mitigation policy. It protects against the outsized and targeted impacts of geopolitical events on a single currency or account, where a business could see significant value wiped unnecessarily from its accounts.
Diversifying your accounts, and maintaining flexibility across multiple currencies, limits your exposure with respect to impacts on any one currency. This is also an opportunity for your business to craft a diversified network of money transfer routes, so as to avoid politically vulnerable corridors and reduce risk accordingly.
3. Monitor Macro And Geopolitical Signalling To Align Transfer Timing
Diversification is a passive method of mitigating risk with respect to geopolitical factors, though – and one that is ultimately blind to the fast-shifting nature of international economics and politics. Where large money transfers are concerned, a business cannot afford complacency; there must be active monitoring of key risk indicators in order to adjust for certain factors.
There are statistical indicators that can point towards the inevitability of certain crises, but keeping up with international news stories is the other side of the equation. Watching developing stories in certain sub-industries and regional economies enables a business to time their financial moves.
4. Build Internal Governance And Scenario-Testing ForTransfer Risk
To maximise successes with respect to risk mitigation and predictions, a business would benefit from enshrining such monitoring with a formal taskforce. Assigning executive responsibility to a team, which can also carry out predictive scenario planning for instances like war, tightening sanctions and sovereign debt defaults, helps corporate treasury teams anticipate and respond to disruptions in transfers.
