Global Currency Wars Are Here to Stay

In 2012, US-based multinational corporations (MNCs) are estimated to have lost around US$50bn in revenue because of unmitigated currency volatility. For the past two years FiREapps has analysed the quarterly earnings calls of a subset of Fortune 2000 companies where 15% or more of their international revenue is in at least two currencies. The aim is to provide insight into how currency fluctuations affect MNCs.

Although US$50bn is itself a big number, because currency impacts are optionally self-reported it is likely to be a conservative estimate. This article will provide an overview of key findings from the fourth quarter of 2012 and the year as a whole, share some insights into how and why currency volatility affects MNCs, and suggest what treasury departments can do about it.

2012 Corporate Earnings Currency Impact Report


  • In the fourth quarter of 2012, 230 companies reported a negative revenue impact from currency fluctuations, a nearly threefold increase over Q411.
  • Of those 230, 109 companies quantified the impact; in aggregate the negative currency-related revenue impact was US$4.2bn, a nearly fivefold increase from a year earlier. Accounting for the companies that reported positive currency impacts, the total net impact was a negative US$4.1bn.
  • The 109 companies that quantified a negative currency impact faced an average headwind of 1.14%.


  • In 2011 the total net currency impact was positive at just over US$21bn, while in 2012 it turned negative at US$50bn. The net reduction in top-line revenue associated with currency impacts, then, was more than US$70bn over the two years.
  • In total dollar terms we begin to see a sustained shift toward currency headwinds in Q411, with net negative currency impacts through to the end of 2012.
  • The drivers of currency headwinds have changed since 2011. Before, impacts came largely from a single currency; now they come from a range of currencies in different parts of the world. This represents a trend that we expect to continue.

Intensifying Headwinds, with New Drivers

In Q411 there was a sustained shift to currency headwinds, and intensification of the negative impacts of currency fluctuations on MNCs. The shift was precipitated by the euro crisis: the volatility of the single currency relative to the dollar increased significantly between Q411 and Q212, driven by the very real fiscal and economic problems in the eurozone as well as fears about the future of the euro itself. Euro volatility was a particularly significant source of net negative currency impacts in Q212, when companies lost US$20.3bn in revenue.

In mid-2012, the drivers of currency headwinds changed. In Q312, companies saw the most significant net negative impacts in two years – US$22.7bn in revenue lost due to currency impacts. That impact was due less to euro volatility; rather it was a mix of currencies – including Brazilian real (BRL), Indian rupee (INR), Japanese yen (JPY) and Canadian dollar (CAD) – that caused most of the negative impact for US MNCs.

In Q412, net negative currency impacts were significantly smaller, just over US$4bn. But at 1.14% of total revenues, on average, the total impact was still significant, demonstrating how sensitive US corporations are to currency fluctuation.

Figure 1: Total Net Reported Currency Impact for US Corporations – Q111 to Q412.
FiREapps Currency Wars figure 1
Source: FiREapps

So the story of the second half of 2012 is a story of the currency storm that began over the eurozone expanding globally. Due to the interconnectedness of global economies and internationalisation of corporations, movement of one country’s currency easily affects those of other countries. In response to reverberations from the eurozone, countries such Brazil, India, Japan, and Venezuela began to manipulate their own currencies.

And thus began the global currency war. Shots fired in this war are often politically motivated: Japan’s new prime minister was elected on a promise to devalue the yen; Venezuela’s ailing president Chavez devalued the bolivar in an attempt to ease fiscal woes ahead of a potential election. But even when currency moves are legitimate responses to recessionary environments, for example quantitative easing, they are nevertheless escalating the global currency war, which in turn intensifies volatility and increases currency headwinds for MNCs.

Currency Impacts Come from all Corners

One of the most significant challenges in this global currency war is that negative impacts can – and will -come from all corners of the world. The INR caused a big impact in Q2 and Q3, but not in Q412. Latin America – via the Venezuelan bolivar (VEF), Argentine peso and BRL – has begun to cause significant negative impacts. And in Q4, the yen came seemingly out of nowhere to be one of the most significant sources of negative impact.

Figure 2: Top Five Currencies Mentioned During Earnings Calls.

FiREapps Currency Wars Figure 2 
Source: FiREapps

The fact that currency volatility has increased significantly across a range of currencies is one reason why 2012 saw negative currency impacts so dramatically higher than in 2011: significant volatility from many different currencies in many different parts of the world exacerbates the negative impact on companies. In this environment, proactive currency risk management is critical. The corporations reporting negative currency impacts are not doing a good job of proactively managing currency risk. Instead, they remain reactionary, and will continue to be surprised by currency impacts.

Companies Less Willing to Quantify Currency Impacts

The FiREapps research found a number of companies had quantified significant negative currency impacts in Q2 and/or Q312 but only reported (didn’t quantify) negative currency impact in Q4. Why were chief executive officers (CEOs) and chief financial officers (CFOs) less willing to disclose currency impacts in Q4? It could be because the issue of currency impacts has become so politically charged, but could also be that CEOs and CFOs don’t have a good handle on how currency fluctuations actually impact their companies.

The fact that corporate leaders can’t, or won’t, quantify the impact of foreign exchange (FX) volatility on earnings should not be acceptable to analysts and investors. Because the technology exists and is accessible for companies to manage currency risk, there is no excuse for corporations either to be surprised by currency impacts even within a global currency war, or to be unable to quantify what the impact is or where it’s coming from.


Investors and analysts must be mindful of the potentially significant impact that currency fluctuation can have. Both investors and analysts need to be comfortable with the corporation’s ability to accurately state its currency risk exposure and articulate the actions that it is taking to manage FX risk. With that information, investors can assess the company in the context of their own risk tolerance, and how that aligns with the extent to which the company is managing its currency risk.

In contrast to the companies that remain reactionary – and which will continue to be surprised by currency impacts – there are companies that have a proactive currency risk management strategy. These treasuries don’t experience significant currency headwinds, or tailwinds. They are what we call ‘currency agnostic’; in other words they don’t care what happens to any given currency as they have managed the risk in both directions, across all the currency pairs in their portfolio.

The days of achieving risk management success by only managing risk on the top five currencies are gone. As companies are exposed on so many currency pairs – hundreds typically – and FX volatility appears in every corner of the world, the only way to successfully manage risk is to take a portfolio approach and manage risk across all currency pairs. Fortunately, with cloud-based exposure management technology, that kind of proactive management can be done at the push of a button.


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