Marcelo Flora, partner and head of Digital Platforms at BTG Pactual, discusses FX management amid elevated geopolitical tensions and the rise of the Chinese yuan.
Global Finance: In a landscape where central bank decisions and carry trades significantly influence global FX markets, what unique value can a bank offer its customers?
Marcelo Flora: Despite major global progress in the fight against post-pandemic inflation, we can see differences in monetary policy cycles across economies as well as different approaches by central banks and their decisions on interest rates. BTG Pactual has a team of FX specialists who can provide tailored advice on navigating the complexities of FX markets, especially in light of varying monetary policies and interest rate decisions across different economies. This includes guidance on hedging strategies and risk management to capitalize on opportunities and mitigate risks associated with carry trades. Custom-tailored offerings and strategies have become a significant trend in corporate banking.
GF: How do geopolitical issues impact your clients’ FX strategies, and how do you address their concerns in this context?
Flora: Geopolitical issues can increase global economic instability and volatility in financial markets. During such periods, investors redirect their portfolios quickly, seeking safe-haven currencies to lower their risk levels. This movement of capital to safer markets strengthens the strongest currencies and depreciates other currency pairs.
Against this backdrop, it is vital to have a customized approach to each specific need in order to understand the level of exposure and use BTG’s diverse hedging portfolio to analyze the best bespoke solution for each client. BTG’s research provides decisive support to the sales team, which helps our clients and other business areas make decisions and highlights potential upside and downside risks.
GF: As Brazil solidifies its role as the world’s breadbasket, what steps have you taken to meet the increasingly specific needs of clients in this sector?
Flora: Brazil’s agricultural sector is a cornerstone of the national economy, contributing significantly to GDP and exports. The annual credit requirement in the agricultural sector is a staggering R$1 trillion, underscoring the critical role of financial institutions in enabling the investment needed to develop and modernize the sector. Our bank has been at the forefront, offering financial solutions tailored to the specific needs of rural producers. BTG has a full shelf of trade finance solutions to address our customers’ needs. We offer electronic trade loans, and pre- and post-shipment to narrow the gap between our clients’ financial needs and their export receivables.
GF: Is there a growing demand for currencies other than the US dollar? What guidance are you providing to customers regarding this shift?
Flora: The US dollar and the euro are still the main currencies used in global payments, but we can see a growing trend for alternative currencies. China has been the main player in trying to internationalize its currency, as it attempts to create alliances worldwide in order to increase yuan usage. China uses its status as a global trade leader to spur the use of yuan in contracts and in export and import payments with Chinese counterparties. The use of alternative currencies can be really attractive and reduce the cost of the total transaction, but as a side effect, it can increase risk and volatility.
GF: How are AI and other breaking technologies helping shape future offerings in the FX market?
Flora: Technology has driven a major change in the FX market. The most significant impact has been on trading. The FX sales desk has developed a more efficient trading and execution tool. By leveraging AI, we have significantly reduced the time needed to close an FX transaction. For next year, we are already working on a solution to improve client experience by streamlining the registration of recipient information and evaluating how we can improve the questions we ask to increase assertiveness and speed up the entire approval process.