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Cash & Liquidity Management
Published  5 MIN READ

Do You Keep Cash Close to (the Currency) Home?

Centralisation has been a key theme in corporate treasury for some years, with many corporations successfully operating regional centres to support particular geographies. Increasingly, however, we see a trend towards centralisation by currency. Corporate treasurers have created account structures to centralise critical balances by currency in the ‘home market’ for that currency. The benefits apply to every currency; however, the value proposition of centralising USD in the United States is often particularly compelling considering its widespread use as an international trading currency and the high volume of cash involved.

The USD imperative

According to estimates by Capital Economics earlier this year, US companies are holding $2.5tr offshore: an increase of nearly 20% over the past two years, and equivalent to nearly 14% of GDP. In addition, non-US headquartered corporations, particularly from Asia, Africa and Latin America, frequently denominate and settle in USD. Given the scale of balances involved, and the ubiquity of the currency for world trade, optimising USD is critical for all companies operating internationally. Comparable value may also exist, for other major currencies such as EUR, GBP and JPY, depending on the materiality of balances and the nature of the organisation’s business model.

Keeping close to home

There are a variety of reasons why companies may consider centralising their USD (or other currency) balances in the currency home market. 

Liquidity management 

Looking first at US-headquartered corporations; many larger companies have regional treasury centres to support cash and liquidity management, while activities such as group financing, FX management, investment etc. are more often located at headquarters. As a result, there can be significant benefits to centralising USD in the US: keeping USD cash pools and residual balances close at hand and in the same time zone while benefiting from later cut-off-times to meet investment deadlines. For non-US headquartered corporations there are investment and payment efficiency benefits of centralising USD.