A Guide to Global Treasury Risk Management during Geopolitical Uncertainty
Despite the globalisation efforts, the pandemic, the supply chain disruptions and escalating geopolitical tensions have a profound effect on how businesses manage their global cash and treasury as well as exposure to risk. The traditional approaches are no longer enough in a world where regional conflicts can instantly disrupt markets, sanctions can be imposed overnight, and currency values can fluctuate dramatically based on political developments.
Treasurers are pressured to seek more sophisticated methods to handle liquidity management, cash flow forecasting and currency risk - and those who do learn to navigate the geopolitical uncertainty will gain significant competitive advantages, like securing supply chains, maintaining steady cash flow when others struggle, and capitalising on opportunities.
The Geopolitical Landscape: More Than Just Headlines
Geopolitical tensions escalate across the globe and make headlines, making people wonder about the stability of our current world order. The Russia-Ukraine conflict, tensions in the Middle East, and political polarisation in the United States create a ripple effect through the economy and global banking operations, which inevitably impacts global treasury management.
The conflict between Russia and Ukraine brought biggest disruptions to trade, energy markets but also affected the price of commodities like wheat. Companies with Russian banking relationships faced operational crises when SWIFT access was restricted. Similarly, the situation in the Middle East has affected shipping routes through the Red Sea, forcing companies to reroute shipments, increasing costs and extending payment terms. In the United States, the deepening split between Democrats and Republicans continues to raise questions about the future of trade and fiscal policies making it incredibly difficult to devise a long-term financial strategy.
These are just a few examples of geopolitical tensions that impact treasurers globally - the link is immediate and direct. In the face of global instability, finance and treasury departments require more advanced monitoring capabilities and analytical frameworks to assess potential impacts as well as contingency plans that can be reliably deployed when needed.
Direct Impacts of Geopolitical Tensions on Treasury Operations
Amplification of Currency Volatility and FX Risk
Global conflicts and sanctions make currencies volatile beyond normal market fluctuations - FX markets observe some extreme movements that severely impact financial stability. During the initial phases of the Russia-Ukraine conflict, the Russian ruble experienced dramatic swings while the euro weakened substantially against the dollar, creating significant translation and transaction exposures.
These currency fluctuations require more sophisticated foreign exchange risk management approaches and modern systems. Traditional hedging instruments, relying on email chains and checking multiple systems for updates and authorisations prove insufficient when different currency pairs can move dramatically based on political developments. The solution is adoption of dynamic hedging strategies and embedded systems that allow for live access to rates, together with overview of liquidity, as well as approvals and trades to be executed without logging in and out. With that, businesses can reassess situations on the spot and adjust their position without risking either, being significantly affected or losing an opportunity.
Disruptions to Global Operations: Supply Chain Management
Geopolitical tensions that result in sanctions or trade disputes can turn once reliable suppliers into financial risks that force changes to the entire supply chain, inventory requirements, payment cycles and inevitably, strain cash positions. The best example is the U.S.-China trade dispute that continues to showcase how tariff alterations can impact the established supply chain and the economic order.
With that, treasury leaders need to lean into more flexible financing arrangements. In the current climate, a standby liquidity that can be activated in times of disruption, is an absolute must so access to working capital needs to be carefully considered in all treasury operations. Finance and procurement need to work together to develop contingency plans for critical suppliers including advanced vendor payment systems such as invoice factoring or rerouting to an alternative supplier to maintain operational continuity.
Shaky Relationships with Financial Institutions and Banking Partners
Perhaps the most troubling aspect of geopolitical risk is how it destabilises banking relationships. When conflicts escalate to sanctions relationships with banks and financial institutions can be severed with minimal warning. Companies that concentrate funds within one financial institution or region can suddenly lose access to funds, payment processing, and critical financial services. This risk extends beyond directly sanctioned countries to include services in countries that maintain ties with sanctioned entities.
This is why diversification of institutional risk becomes essential. Treasury departments now recognise that concentration risk applies not just to credit exposure but also to geographic and political exposure and maintain banking relationships across multiple jurisdictions, ensuring operational continuity even when specific relationships become compromised.
Building Resilient Treasury Function in Uncertain Times
Geographic Diversification Strategies
Geographic diversification has become a cornerstone of treasury resilience. Global businesses distribute their assets, banking relationships and operations across multiple countries and institutions to reduce vulnerability of being impacted by local disruptions.
Effective geographic diversification includes:
As an example, companies that had established alternative banking channels outside Russia prior to sanctions faced fewer operational challenges than those scrambling to establish new relationships after restrictions were implemented. Similarly, during the pandemic, businesses with regional treasury operations in multiple currencies were better positioned to manage supply chain finance challenges.
Managing multiple banking relationships globally of course comes with its unique challenges of ensuring compliance, additional fees and diverse systems however treasury systems like Fyorin, allow you to access multiple banking partners from a single platform, using one onboarding and compliance process thanks to their extensive network of financial institutions.
Forecasting and Stress Testing
Forecasting has evolved from an occasional exercise into a continuous process that includes maintaining and updating scenarios that address potential disruptions and their financial implications, as well as detailed response contingency plans that can be activated when trigger events occur.
Effective treasury stress testing examines impacts on:
By staying on top of stress testing and planning continuously rather than developing them when crises emerge, companies can stay agile and confident when hit with a real crisis.
Building Financial Flexibility
Treasury departments now place greater emphasis on accessibility and flexibility rather than pure yield optimisation. This is because having immediate access to liquidity during crises provides substantial competitive advantages, even if it requires accepting lower returns during normal periods.
During the early days of the pandemic, businesses with robust cash management practices were able to continue paying suppliers and employees, while the less prepared competitors faced cash flow challenges. Similarly, companies with flexible cross-border payment capabilities were better positioned to navigate the sanctions environment following the Russia-Ukraine conflict.
How to Leverage Technology to Mitigate Risks
Real-time visibility across global operations is a critical capability when conditions change rapidly. Modern treasury systems now consolidate data from multiple banking platforms, ERPs, and market feeds to create a comprehensive view of an organisation's financial position. Businesses that have already leaned into this unified treasury platforms are able to firstly, identify emerging risks such as compromised banking relationships or unusual currency volatility faster, and, secondly, adjust payment routes, shift cash positions, and implement contingency measures from a central control point.
The ability to maintain this centralised control and visibility across multiple entities has become particularly valuable as companies adopt more distributed operating models in response to geopolitical risks. Organisations with subsidiaries in different jurisdictions need consolidated views to ensure that entity-level decisions align with overall risk management strategies.
Automated Contingency Execution
Treasury systems have also evolved to deploy pre-programmed responses if triggered by specific events. This automated execution of contingency plans is particularly valuable in fast-moving crises when normal decision-making processes may be too slow and could take days to implement. For example, when currency volatility exceeds predetermined thresholds, automated workflows can execute hedging transactions according to predefined rules without requiring manual intervention.
Implementation of these automated contingency workflows requires:
The benefits of extending financial automation to contingency planning and treasury is greater resilience during geopolitical disruptions and competitive advantage of maintaining business continuity in the face of crisis.
Multi-Entity Coordination across entire corporate treasury
Coordinating treasury activities across multinational entities can be challenging during geopolitical crises - each subsidiary may face a different level of risk, operate under their own regulatory constraints, while the corporate treasury management still requires a cohesive approach and swift response. A unified treasury management system can coordinate treasury operations across entities by providing a single platform that is used across the enterprise. It brings:
With a central system in place businesses can coordinate a response while maintaining appropriate local autonomy. When sanctions impact specific regions, integrated treasury systems allow for the rapid reconfiguration of payment flows across the enterprise to ensure business continuity. When currency crises emerge, these systems enable coordinated execution of trades that protect the organisation as a whole rather than creating competing positions across different entities.
Fyorin, your financial partner
Fyorin, a financial operations platform for digital businesses, automates and monetizes the movement of money, making financial operations smoother, faster and more efficient. The platform eliminates 90% of manual work, allowing businesses to connect with their preferred accounting platform to automate receivables and payables.
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Conclusion: Adaptive Treasury Management for an Uncertain Future
As geopolitical tensions grew, the treasury needed to adapt. Multinational organisations needed geographic diversification, scenario planning, financial flexibility while maintaining global governance and local autonomy. Treasury systems, understandably, evolved and adapted to those needs to address the most pressing pain points and provide competitive advantage in the world where disruption has become the norm.
For treasury departments seeking to increase their resilience, integrated platforms that combine visibility, control, and automation across multiple entities provide particular value. Solutions like Fyorin offer modern approaches to treasury management that address the specific challenges created by geopolitical uncertainty - enabling consolidated visibility across accounts, automated contingency execution, and establishing banking presence in multiple jurisdictions using one compliance process.
