Connect with us

Trading

A BEGINNER’S GUIDE TO CURRENCY MANIPULATION

Published

on

Nat Davison

By Nat Davison, Partner, Frontierpay

There’s been a great dealof conversation in the media recently about currency manipulation, with the majority of the dialogue focusing on President Trump’s passionate belief that China is currently trying to manipulate the Yuan for its own gain.

A BEGINNER’S GUIDE TO CURRENCY MANIPULATIONHowever, as financial experts debate the implications of such an accusation on news stations around the world, it’s easy to get lost in the discussion. However if you’re wondering just where you come into the equation and how your livelihood will be affected, rest assured – you are not alone. 

What exactly is currency manipulation?

Currency manipulation, at its most basic level, is an attempt by a country to revalue its own currency. In the US, the organisation that controls monetary policy is the Federal Reserve, in the UK it would be the Bank of England’s Monetary Policy Committee and in China it would be the Central Politburo of the Communist Party of China.

The US Administration believes that China has devalued its currency with the intention of making its own products and services cheaper elsewhere in the world and therefore boosting exports. There are a number of ways that a country might go about this;its main central bank could print more money or it might decide to purchase a large amount of another currency.

In either case, the goal would be to push the value of its own currency down. For example, if we were to hypothetically assume that President Trump’s suggestions are correct and China is indeed manipulating the value of its own currency, we might see the value of the Yuan drop from 8.5 yuan per dollar to 9 yuan per dollar. 

Who benefits?

One reason for currency manipulation is to boost the sale of goods, the country devaluing its currency will benefit by increasing its income from exports, as other countries will be able to purchase its goods at a more competitive rate and will therefore increase their spend on imports.So if China were to manipulate its currency to devalue the yuan against the dollar, Chinese exporters will benefit but so too will US consumers, as they are now getting much greater value for their dollars and can purchase Chinese goods at a reduced price.

A country may also find a weaker currency an effective way of resolving a national debt or trade deficit, as a result of the increased income coming into the country from selling additional exports.

Who suffers?

Nat Davison

Nat Davison

You could be forgiven for thinking that a country has a lot to gain from devaluing its own currency. However, if we revisit our China vs. US example, we will find that while their American counterparts are reaping the benefits of being able to purchase goods at a more competitive rate, Chinese consumers are suffering.The devaluation of the yuan will mean that US products are more expensive in China and the money in the pockets of Chinese consumers is therefore worth significantly less than it was before. US exporters will also feel the pinch, as their goods become more expensive in China and sales begin to wane as they are less competitive.

On a larger scale, if a country is devaluing its currency in an attempt to clear an internal deficit, it may soon find that any foreign debts will become increasingly unmanageable, as the value of the foreign currency, and therefore the pressure of the debt, increases. 

Can we protect ourselves?

If a country is devaluing its currency, there is ultimately very little that can be done about it. One response, if it is believed that a country is devaluing its currency to boost its exports, is for others to also devalue their own in an attempt to restore balance to the trading scales.However, this opens the door for a “race to the bottom,” with unchecked inflation across the board suddenly becoming a very real possibility.

Alternatively, certain countries could be blacklisted by others as trading partners. This would be an extreme reaction, as in the vast majority of cases, the implications of losing trade with another country entirely are more severe than the effects of skewing the value of currency.

What can businesses do?

My advice to any business that trades regularly overseas and is concerned about whether its operations are likely to be hit by the effects of currency volatility is to consider hedging strategies. Buying ‘Forward’ eliminates currency risk and provides a greater degree of certainty from a budgetary perspective.

Setting aside the question of whether there is any truth in President Trump’s accusation, there’s no doubt that currency manipulation has the potential to cause real turbulence in the currency markets. Affecting everyone from the man on the street buying his weekly groceries, to the CEO of a global corporation looking to sell his goods around the world, we must be vigilant, as there’s never been a more important time keep on top of the value of your money.  

Notes to editors

Frontierpay is a specialist foreign exchange and payments service. Regulated by the FCA, the firm delivers cost effective and dependable cross currency and same currency payroll payments across 180 countries. Frontierpay’s mission is to ensure our customer’s payroll gets made on time, every time.

Using a global banking network and boasting unrivalled access to 140 currencies and with the speed and nimbleness of a smaller independent firm, Frontierpay is uniquely placed to deliver a comprehensive foreign exchange payments service beyond borders.

https://www.frontierpay.com/

For further details about this press release please contact:

Alex Sedgemore or Tom Hindle

BOTTLE PR

Tel – 01865 770381

Email – [email protected]

 

Trading

Barclays announces new trade finance platform for corporate clients

Published

on

Barclays announces new trade finance platform for corporate clients 1

Barclays Corporate Banking has today announced that it is working with CGI to implement the CGI Trade360 platform. This new platform will provide an industry leading end-to-end global trade finance solution for Barclays clients in the UK and around the world.

With the CGI Trade360 platform, Barclays will provide clients with greater connectivity and visibility into their supply chains, allowing them to optimise working capital efficiency, funding and risk mitigation. By utilising cloud based functionality for corporate banking clients, Barclays will also be able to offer a leading client user experience through easy access and real-time integration to essential information, combined with the latest trade solutions as the industry-wide shift to digitisation continues to accelerate.

This move underpins Barclays commitment to supporting the trade and working capital needs of their clients and reinforces a commitment to innovation that has been central to the bank for more than 300 years.

James Binns, Global Head of Trade & Working Capital at Barclays, said: “We are delighted to announce our move to the CGI Trade360 platform and to have started the implementation process. We have a longstanding partnership with CGI, and the CGI Trade360 platform will mean we can continue delivering the best possible trade solutions and service to our clients for many years to come.”

Neil Sadler, Senior Vice President, UK Financial Services, at CGI, said: “Having worked closely with Barclays for the last 30 years, we knew we were in an excellent position to enhance their systems. Not only do we have a history with them and understand how they work, but part of the CGI Trade360 solution includes a proof of concept phase, which is essentially seven weeks of meetings and workshops with employees across the globe to guarantee the product’s efficiency and answer all queries. We’re delighted that Barclays chose to continue working with us and look forward to supporting them over the coming years.”

Continue Reading

Trading

What’s the current deal with commodities trading?

Published

on

What’s the current deal with commodities trading? 2

By Sylvain Thieullent, CEO of Horizon Software

The London Metal Exchange (LME) trading ring has been the noisy home of metals traders buying and selling for over a hundred years. It’s the world’s oldest and largest metals market and is home to the last open outcry trading floor. Recently however, the age-old trading ring, though has been closed during the pandemic and, just a few weeks ago, the LME announced that it will remain so for another six months and that it is taking steps to improve its electronic trading. This news fits in with a growing narrative in commodities about a shift to electronic trading that has been bubbling away under the surface.

Something certainly is stirring in commodities. The crisis has affected different raw materials differently: a weakening dollar and rising inflation risks bode well for some commodities with precious metals being very attractive, as seen by gold reaching all-time highs. Oil on the other hand has had a tough year and experienced record lows from the Saudi-Russia pricing war. It has been a turbulent year, and now prices look set to soar. While a recent analyst report from Goldman Sachs predicts a bullish market in commodities for the year ahead, with the firm forecasting that it’s commodities index will surge 28%, led by energy (43%) and precious metals (18%).

Increasingly, therefore, it seems that 2020 is turning out to be a watershed moment for commodities, and it’s likely that the years ahead will bring about significant transformation. And whilst this evolution might have been forced in part by coronavirus, these changes have been building up for some time. Commodities are one of the last assets to embrace electronic trading; FX was the first to take the plunge in the 90s, and since then equities and bonds have integrated technology into their infrastructure, which has steadily become more advanced.

The slow uptake in commodities can be explained by several truths: the volumes are smaller and there is less liquidity, and the instruments are generally less exotic, essentially meaning it has not been essential for them to develop such technology – at least not until now. This means that, for the most part, the technology in commodities trading is a bit outdated. But that is changing. Commodities trading is on the cusp of taking steps towards the levels of sophistication in trading as we see in other asset classes, with automated and algo trading becoming ever prominent.

Yet, as commodities trading institutions are upgrading their systems, they will be beginning to discover the extent of the job at hand. It’s no easy task to upgrade how an entire trading community operates so there’s lots to be done across these massive organisations. It requires a massive technology overhaul, and exchanges and trading firms alike must be cautious in the way they proceed, carefully establishing a holistic, step-by-step implementation strategy, preferably with an agile, V-model approach.

The workflow needs to be upgraded at every stage to ensure a smooth end-to-end trading experience. So, in replacement of the infamous ring, these players will be looking to transform key elements of their trading infrastructure, including re-engineering of matching engines and improving communications with clearing houses.

However, these changes extend beyond technology. For commodities players to make a success of the transformation in their community, exchanges need to have highly skilled technology and change the very culture of trading. All of which is currently being done against a backdrop of lockdown, which makes things much more difficult and can slow down implementation.

What is clear is that coronavirus has definitely acted as a catalyst for a reformation in commodities. It is a foreshadowing of what lies ahead for commodities trading infrastructure because, a few years down the line, commodities trading could well be very different to how it is now, and the trading ring consigned to history.

Continue Reading

Trading

Afreximbank’s African Commodity Index declines moderately in Q3-2020

Published

on

Afreximbank’s African Commodity Index declines moderately in Q3-2020 3

African Export-Import Bank (Afreximbank) has released the Afreximbank African Commodity Index (AACI) for Q3-2020. The AACI is a trade-weighted index designed to track the price performance of 13 different commodities of interest to Africa and the Bank on a quarterly basis. In its Q3-2020 reading, the composite index fell marginally by 1% quarter-on-quarter (q/q), mainly on account of a pull-back in the energy sub-index. In comparison, the agricultural commodities sub-index rose to become the top performer in the quarter, outstripping gains in base and precious metals.

The recurrence of adverse commodity terms of trade shocks has been the bane of African economies, and in tracking the movements in commodity prices the AACI highlights areas requiring pre-emptive measures by the Bank, its key stakeholders and policymakers in its member countries, as well as global institutions interested in the African market, to effectively mitigate risks associated with commodity price volatility.

An overview of the AACI for Q3-2020 indicates that on a quarterly basis

  • The energy sub-index fell by 8% due largely to a sharp drop in oil prices as Chinese demand waned and Saudi Arabia cut its pricing;
  • The agricultural commodities sub-index rose 13% due in part to suboptimal weather conditions in major producing countries. But within that index
    • Sugar prices gained on expectations of firm import demand from China and fears that Thailand’s crop could shrink in 2021 following a drought;
    • Cocoa futures enjoyed a pre-election premium in Ghana and Côte d’Ivoire, despite the looming risk of bumper harvests in the 2020/21 season and the decline in the price of cocoa butter;
    • Cotton rose to its highest level since February 2020 due to the threat of storm Sally on the US cotton harvest, coupled with poor field conditions in the US;
    • Coffee rose 10% as La Nina weather conditions in Vietnam, the world’s largest producer of Robusta coffee, raised the possibility of a shortage in exports.
  • Base metals sub-index rose 9% due to several factors including ongoing supply concerns for copper in Chile and Peru and strong demand in China, especially as the State Grid boosted spending to improve the power network;
  • Precious metals sub-index, the best performer year-to-date, rose 7% in the quarter as the demand for haven bullion continued in the face of persistent economic challenges triggered by COVID-19 and heightening geopolitical tensions. In addition, Gold enjoyed record inflows into gold-backed exchange traded funds (ETFs) which offset major weaknesses in jewellery demand.

Regarding the outlook for commodity prices, the AACI highlights the generally conservative market sentiment with consensus forecasts predicting prices to stay within a tight range in the near term with the exception of Crude oil, Coffee, Crude Palm Oil, Cobalt and Sugar.

Dr Hippolyte Fofack, Chief Economist at Afreximbank, said:

“Commodity prices in Q3-2020 have largely been impacted by COVID-19. The pandemic has exposed global demand shifts that have seen the oil industry incur backlogs and agricultural commodity prices dwindle in the first half of the year. The outlook for 2021 is positive however conservative the markets still are. We hope to see an increase in global demand within Q1 and Q2 – 2021 buoyed by the relaxation of most COVID-19 disruptions and restrictions.’’

Continue Reading
Editorial & Advertiser disclosureOur website provides you with information, news, press releases, Opinion and advertorials on various financial products and services. This is not to be considered as financial advice and should be considered only for information purposes. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third party websites, affiliate sales networks, and may link to our advertising partners websites. Though we are tied up with various advertising and affiliate networks, this does not affect our analysis or opinion. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you, or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish sponsored articles or links, you may consider all articles or links hosted on our site as a partner endorsed link.

Call For Entries

Global Banking and Finance Review Awards Nominations 2020
2020 Global Banking & Finance Awards now open. Click Here

Latest Articles

Beyond Transactions: The Payment Revolution 4 Beyond Transactions: The Payment Revolution 5
Finance17 hours ago

Beyond Transactions: The Payment Revolution

By Marwan Forzley, CEO of Veem  The uninterrupted disruption brought on by the pandemic accelerated the need for robust, digital-first...

The UK’s hidden payments crisis: why businesses should rethink their payments strategy 6 The UK’s hidden payments crisis: why businesses should rethink their payments strategy 7
Finance17 hours ago

The UK’s hidden payments crisis: why businesses should rethink their payments strategy

By Edwin Abl, Chief Marketing Officer at Modulr. As the economic conditions imposed by the Coronavirus endure, businesses are facing a...

Investing into a more sustainable future: changing businesses from the inside out 8 Investing into a more sustainable future: changing businesses from the inside out 9
Top Stories17 hours ago

Investing into a more sustainable future: changing businesses from the inside out

By Shawn Welch, Vice President and General Manager of Hi-Cone Worldwide As industries across the world are facing unprecedented uncertainty...

Securing Information Throughout the Supply Chain – Preventing Supplier Vulnerabilities  10 Securing Information Throughout the Supply Chain – Preventing Supplier Vulnerabilities  11
Top Stories18 hours ago

Securing Information Throughout the Supply Chain – Preventing Supplier Vulnerabilities 

By Adam Strange, Data Classification Specialist, HelpSystems  The financial services sector is experiencing extreme disruption coupled with rapid innovation as...

RegTech 2020: The rise of Open Banking 12 RegTech 2020: The rise of Open Banking 13
Banking19 hours ago

RegTech 2020: The rise of Open Banking

This month on the RegTech 20:20 podcast, host Alex Ford is joined by industry experts Gavin Littlejohn, Chairman of The...

The case for AI technology adoption in financial back-office roles to improve efficiency 14 The case for AI technology adoption in financial back-office roles to improve efficiency 15
Technology21 hours ago

The case for AI technology adoption in financial back-office roles to improve efficiency

By Tomas Gogar, AI CEO, Rossum In this era, digital transformation isn’t anything new. Nonetheless, it can still cause a...

Gain financial regulation qualification online 16 Gain financial regulation qualification online 17
Finance21 hours ago

Gain financial regulation qualification online

Gain financial regulation qualification online   Warwick Business School in partnership with the Bank of England are delighted to offer...

COVID-19: Dealing with fraudulent applications for the Bounce Back Loan Scheme 19 COVID-19: Dealing with fraudulent applications for the Bounce Back Loan Scheme 20
Finance1 day ago

COVID-19: Dealing with fraudulent applications for the Bounce Back Loan Scheme

By Ed Lloyd, EVP Global Head of Sales, Encompass The COVID-19 pandemic is still having a devastating impact on businesses...

EU Commission sets out new intellectual property action plan affecting SEPs, patent pooling and EU design protection 21 EU Commission sets out new intellectual property action plan affecting SEPs, patent pooling and EU design protection 22
Business1 day ago

EU Commission sets out new intellectual property action plan affecting SEPs, patent pooling and EU design protection

By Andrew White, Partner and UK & European patent attorney at intellectual property firm, Mathys & Squire The EU Commission...

InsurTech is helping to drive the digital evolution of the UK motor retail industry 23 InsurTech is helping to drive the digital evolution of the UK motor retail industry 24
Technology1 day ago

InsurTech is helping to drive the digital evolution of the UK motor retail industry

By Alan Inskip, Tempcover CEO & Founder If the last nine months have made anything clear, it is that the...

Newsletters with Secrets & Analysis. Subscribe Now