Switzerland’s Francogeddon: lessons learned one year on

Swiss National Bank

They say anniversaries are a good time to reflect on what’s happened and discuss the future. For corporate treasurers, the sudden U-turn sprung by the SNB is no exception. Just over a year has elapsed since the episode dubbed ‘Francogeddon’ by social media. It seems hard to fathom now, but in the midst of the market mayhem on that now infamous Thursday January 15 2015, many corporate treasury teams felt underprepared to manage risk.

It’s easy to see why; it’s not every day an event of such magnitude and suddenness occurs. As the Swiss franc (CHF) shot up 30% against the euro, corporate treasurers had some pressing concerns. At the time, these ranged from understanding their risk profile to finding out their exact market position. Unfortunately, the struggle to access accurate pricing information quickly on the day left many scratching their head for answers.

This was due to the fact that initially, many firms were in the dark about the quality of the rates provided and where they came from. As we know, accessing foreign exchange (FX) rates should be easy – getting hold of the good ones is the tricky part. Many global corporates understandably, aren’t able to distinguish the difference between informative rates and ones they can transact on. On top of this, certain firms still use spreadsheets to manage their risk. The problem is that this involves the cutting and pasting of data, which can lead to errors and less accurate and timely prices. All of these factors highlight the need to automate data feeds for FX rates – a step that many treasurers have already taken.

A comprehensive view

The challenge, a year on from Francogeddon isn’t so much one of accessing and automating the best rates; it’s one of how to make the most out of the information available. A case in point is from a monitoring perspective, it is no longer good enough to look at single currency, such as the CHF, in isolation. Treasurers, financial controllers and chief financial officers (CFOs) alike now have to look at multiple currency pairs and any moves that that could affect their value, which include central bank interest rate rises and falling oil prices.

By looking at the raw data that supports any possible currency swing, and assessing what the next step should be, the treasury department can really come into its own. However, it may not always be a case of deciding which transaction to make from a hedging or risk management perspective, but more of how to spread the data across the business to ensure the right people can act upon it.

There has been no shortage of events to keep corporate treasurers busy since the SNB sprang its surprise. China’s devaluation of the yuan (CNY) last August is an example that immediately springs to mind. It will certainly be interesting to see how far attitudes towards manging risk have progressed come the anniversary of this event.

We have seen a greater demand from treasurers to monitor risk before it occurs and the SNB certainly reinforced the importance of not waiting until tomorrow to report on exposure. For those treasurers who haven’t done so already, it’s high time to take a proactive rather than reactive approach to these events. After all, as the market witnessed last January, there’s no telling when or where the next volatility shock might come from.

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