Bitcoins and other cryptocurrencies are increasingly accepted in the mainstream. This article focuses on how they are perceived and their potential translation into the treasury field.


Are crypto-currencies “currencies”? 


With crypto-currencies, we treasurers have a first hurdle to cross: are crypto-currencies “currencies”, like real ones issued by central banks and regulated (e.g. EUR, USD, GBP, JPY, …)? That’s a first question we need to answer. I am afraid no one so far has succeeded in answering this key question. A currency must be fungible and exchangeable. Here, with crypto-currencies the high volatility and risk of illiquidity are so high that no one could claim he/she will recuperate all the value (at the instant “T”, whatever the exchange rate). However, no one could pretend it is not exciting and something to be further contemplated and explored. For once since the EUR, we have potentially a new currency to manage and therefore new risks too. Of course, it could be time to reconsider bitcoins and other similar currencies as they are increasingly accepted in the mainstream. It can offer opportunities (but risks too) to open new business to new customers and to give the company a competitive advantage on peers. The meteoric evolution of bitcoin value in the last months and volatility were not factors to encourage the usually conservative treasurers to consider (i.e. volatility reached 15 the one of USD/EUR currency pair). Even if the move from the realm of the dark web into the light they remain a peculiar currency to manage. I don’t think it could be used for large transactions but rather for small deals and tiny payments. As for lots of services, the new “Z” generation may change the future and shape the recourse and development of these new currencies. I do believe there is a “fashionable” effect, which somehow distort the perception and real potential. This is also a new paradigm and we treasurers are leaving our comfort zones. But in case a customer asks for paying in Etherium, we need to be able to answer to our commercial officers. I am not sure we are all prepared to answer positively. We all see some of the benefits of such currencies but are skeptical about the effective generalized use of them we could face soon. It may come but maybe later or more gradually. Now we are all looking for transparency, we have heavy KYC’s and should demonstrate how clean we are, we plan to use currencies with anonymity, which make them complicate to understand. Nevertheless, behind the currency there is the technology of so-called block chain which is fascinating. Have you noticed that Santander, a bank, used it for investor’s vote? They used online ledger to produce shadow register. Was it a digital coup? They were the first to use block chain to make it easier for investors to vote at an annual meeting. Well done! The alternative uses of such a smart technology offer an incredible potential and infinite possibilities. I believe more in the technology than in the crypto-currencies, at this stage. 

There is a “fashionable” effect, which somehow distort the perception and real potential of cryptocurrencies


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Stability for being successful 

To be successful it needs to be are stable, demand should grow overtime, the anonymity should not be used by fraudsters and criminals, hidden behind to this potential laundering machine. Regulations must have to be adjusted and these currencies will need a more solid framework to be more largely used. It is a paradox isn’t it? A currency created by Libertarian which will require more regulation to frame it. Where is the famous Libertarian aim of Nakamoto when he created the Bitcoin? Furthermore, the legal status of these currencies and more specifically Bitcoins have been treated differently in some countries (e.g. China). As legal framework varies from country to country and as it is still evolving and undefined, it creates an additional hurdle for treasurers. Ideally a currency must be accepted by all (of course again depending on the exchange rate when it is used to pay). Some countries authorize the use and trade of these currencies when some other restrict or prohibit them. Therefore, treasurers must put forward the case for using blockchain in the day-to-day operations and weight the benefits and potential drawbacks. Obviously, the cost can be a key element. Banks could be reluctant to these changes given the impact on their P&L statements. One of the question, will remain the hedging of such currencies. Would it be possible to hedge them and how? It is maybe too early to consider these hedges. However, the question will come and be raised sooner or later. No one can pre-estimate over time the degree of acceptance of crypto-currencies as a (new) form of payment. It is particularly complexified by the current payment (e-payment) revolution we are facing and the enforcement of PSD2 which open the Pandora box of banks to all players. Corporates want more transparency, more efficiency, less costs and faster payments (especially for cross-border ones). Even SWIFT is moving on cross-border payments with GPI.  The well-known economist Milton Friedman said: “People accept these pieces of paper because they are confident that other will”. If not, no one will use the currency. A green note in USD has value because many people think they have the value the market is given them and furthermore, over time everybody’s experience these notes have had value. It is a question of faith and trust. 

"No one can pre-estimate over time the degree of acceptance of crypto-currencies as a new form of payment."

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Time to start considering crypto-currencies? 

We keep thinking it is at least time to consider paying some suppliers using crypto-currencies. Of course, the list is long with the RIPPLE, BTCCash, Bitcoin, Etherium, Litecoin, Dash, Dogecoin, Monero, etc… but some of them could/will survive. A consolidation of some of these virtual currencies will come sooner or later. There is a sort of infatuation around virtual currencies or maybe the fear of missing out which can explain the appetite for them. The secret hope of making easy money too, I must confess. However, we should not completely reject them for our B2C businesses. We know advantages they offer in countries where we have exchange controls, extra-costs or charges and long time before being paid. It is not the starting point as there are enough reasons making hard to move them up on our treasury agendas. Furthermore, the current underlying volatility makes it even more complicate to initiate. CFO’s hate volatility, as we all know. Eventually our IT systems are not yet fit to handle and book such currencies. We need time to stabilize and consolidate the market before having a real case for all of us. It is a question of time, I guess. With instant payments, the notion of speed comes back. In a future cashless world, everything will change and with new generations having appetite for all what is save, cheap and fast will push suppliers to offer crypto-currencies, whatever their views on these currencies. In my views, the distributed ledger will paradoxically offer lots of solutions we do not even thought about yet. The technology, as for post-it will be developed and reused but for other purposes than a virtual currency. It will be the perfect example of a new use of an old(er) invention (e.g. Post-it, dynamite, Teflon, Sarin gas, etc…). At least it has a lot of attention from treasurers. Some countries are already working with them to move cash. Estonia could be the first out of the gate with digital token backed by the euro. Maduro in Venezuela issued Petro not as a gimmick but a way to circumvent some sanctions.  Therefore, no one could contest the benefits this crazy idea and currency will have on our life’s. The excitement of banks for block chain derived technologies is not the same as the one shown by corporates. The pressure on banks is also much higher to define their future services and they way to deliver these services to customers potentially through new technologies. Solutions have already emerged and are emerging in trade finance, payments, KYC, reconciliations, loans, etc… No one would dare to claim it is the panacea for remedying to all our problems. It may solve at least some of them in future. Regarding crypto-currencies, they potentially may not survive. Nevertheless, smart contracts and distributed ledgers will have in the meanwhile revolutionized the financial world and beyond. In the payment area, nobody could contest the success of RIPPLE, for example. There are many others. Costs and real-time execution are the 2 key assets in terms of payments. Even banks, market infrastructures and SWIFT use this technology, which is gaining traction.  Bitcoin was the (unvolunteered) trigger of an undeniable and historic technological revolution. It will be remembered for a long time that Bitcoin (which will have disappeared likely meanwhile) has brought to the modern financial world. The “fourth wave” or the “new industrial and digital revolution” were probably launched in 2008 with the creation of this currency. Technology will survive the virtual currencies to the point that we will probably forget them despite everything that Bitcoin has brought us collaterally / indirectly. It will have launched a digital revolution its creators did imagine at that time. Nakamoto will have more influence on modern economy than Adam Smith or Milton Friedman. The future is uncertain but bright with such a technology and we are far from having seen all its potential. The best is to come.

"There is a sort of infatuation around virtual currencies or maybe the fear of missing out which can explain the appetite for them."