Liquidity management is undergoing a period of major change. Liquidity is (re)circulating more quickly, major opportunities are emerging in ‘big data’ analysis and the global economy looks set to push liquidity levels higher. Nick Powell, Global Head of Commercialisation and Ray Suvrodeep, Global Head of Deposit and Investments Product Management, Global Liquidity and Cash Management at HSBC examine some of the opportunities arising from this situation and how treasuries might best maximise them.
Increasing Liquidity Velocity
Instant Payments, Faster Clearing
Liquidity is moving faster. Innovations such as instant payment systems are seeing clearing cycles shrinking to the point of being almost instantaneous. At the same time, the advent of mobile payments is triggering 24×7 cash flows at far higher frequencies. Furthermore, this acceleration doesn’t just apply locally: various SWIFT initiatives mean that it also pertains to cross-border and global flows as well. The net result is that the velocity of liquidity is increasing and is likely to continue doing so.
In general terms this may be beneficial to corporations, as their cash conversion cycles diminish, along with latency in their payment execution and the amount of contingency cash buffer needing to be held in their bank accounts. This could result in less pressure on cash flow planning and forecasting, as well as assisting working capital efficiency.
On the other hand, this new faster liquidity environment also throws up some challenges for treasuries. For treasurers, getting cash to the right place, in the right currency, at the right time, is a fundamental task. However, as payments become faster, outflows also accelerate, so the response times for fulfilling this obligation become more demanding.