When Currencies Collide

Using Physical FX Tools and Virtual Offsets to Tame Cross-Border Liquidity

As interest rate cycles continue to diverge and geopolitical tensions flare, treasurers are left grappling with multicurrency headaches – often while wading through forecasting fog. BNP Paribas’ Arnaud Peis and Matthieu Boyer explain how liquidity structures, with physical hedges and virtual offsets, are helping corporates regain confidence, without surrendering control.

The strengths and weaknesses of treasury structures inevitably come sharply into focus when volatility rears its head. And when markets turn, corporates must rely on the resilience of well-constructed liquidity structures and as exposures move daily, balances accumulate in multiple currencies, and forecasting accuracy becomes elusive.

“Market stress almost always exposes the underlying vulnerabilities of liquidity structures themselves,” says Arnaud Peis, Global Product Manager, Investments and Liquidity Innovations, BNP Paribas. “Everything becomes more visible – the breaches, the gaps, and the improvements still required, especially in manual workflows.”

While some treasurers dream of complete centralisation to help solve these issues, most corporates are responding with incremental adjustments rather than radical shifts, notes Peis. “Treasurers recognise that their existing frameworks provide a degree of robustness, but they are also acutely aware of where those frameworks are stretched, especially against a backdrop of trade wars, policy divergence, and geopolitical headwinds.”

The dichotomy, he says, is that treasury teams need resilience in their structures, yet they must also preserve flexibility in case conditions change overnight. “Liquidity has therefore become both an anchor and a pressure point, carrying the weight of volatility but also providing the strength to withstand it.”

Beneath these broad market dynamics lie two interlinked challenges that shape almost every conversation treasurers are now having about multicurrency liquidity. First is the sheer difficulty of managing balances scattered across currencies and jurisdictions – flows that rarely align neatly and that can leave cash stranded or exposed if not actively managed. Second is the persistent lack of confidence in both cash and FX forecasting: exposures change faster than they can be consolidated, projections are only as good as the data feeding them, and volatility undermines the very assumptions upon which treasury judgment calls rest.

Forecasting in a hall of mirrors

“The decision-making stage is often the most challenging,” acknowledges Peis. “How much to hedge, and how to hedge, depends on forecasting accuracy, yet treasurers frequently lack confidence in their positions, whether that be their FX exposures or their cash balances. Maintaining solid projections over time is almost always a struggle.”

Treasury policy remains front of mind for corporates, that are carefully weighing the balance between ‘wait-and-see’, leaning towards natural hedging, or considering financial instruments. After all, too much hedging ties up scarce liquidity, while too little can leave corporates dangerously exposed to the downside of currency swings.

The outcome is a constant balancing act – not just between hedging or remaining unhedged, but between visibility, flexibility, and cost. This is where treasurers are increasingly turning to their banks for solutions to remove the burden, without eliminating choice.

Peis comments: “Working with corporates across countries, industries, and currencies enables us to design approaches around two main pillars in liquidity management: becoming of interest to treasurers here: physical tools and virtual offsets. Of course, they can be used in combination and often that leads to the greatest overall effect.”

Automation without abdication

The physical solutions – namely cross-currency sweeps and automated FX swaps – are broadly designed to turn static balances into dynamic resources that can be channelled where they are most needed.

“The cross-currency sweep is a straightforward tool designed as an integral part of routine liquidity management,” explains Peis, “but it is often under-used by treasury teams.” The mechanism automates the conversion of balances from one currency to another, fully integrated within physical pooling structures. Cash flows naturally into the master account while balances in minor currencies are consolidated in full alignment with the risk management function.

According to Peis, clients typically use it not for day-to-day operational cash, but for distributing potential excess balances to the central entity while retaining a buffer in secondary accounts to cover local requirements. As such, treasurers can bring a degree of discipline to balances that would otherwise remain dispersed, while keeping enough flexibility at the edges of the structure to meet regional needs.

Automated FX swaps address a slightly different but related challenge – the need to deal efficiently with temporary funding requirements or to put surplus cash to work across currency pairs without relying on end-of-day guesswork. Here, BNP Paribas leverages its banking ledger data to power proprietary Kantox’s currency management automation strong calculation engine, optimising swap amounts. The solution is designed to fully capitalise on a centralised liquidity structure, operating within tailor-made client’s parameters; balancing risk oversight with cash efficiency.

“We can easily compute how much an account would hold at the end of the day,” says Peis. And by providing a view ahead of cut-off, the tool compensates for the lack of forecasting precedent that typically leaves treasurers in reactive mode, waiting until balances settle before making a call. “This helps bridge the gap between risk management and optimisation.”

Together, these physical solutions give treasurers a way to automate the flows that matter, reduce last-minute surprises, and gain greater confidence that cash is positioned where it can deliver the most value.

Flexibility through virtual structures

While the physical tools focus on directing cash flows, the virtual offset solutions operate at a different level – giving treasurers more room to manoeuvre without requiring constant transactional activity. Multicurrency notional pooling and cross-border interest optimisation play a crucial here, enabling companies to streamline liquidity management, rather than relying on day-to-day operational adjustments, and to extract more value from liquidity that would otherwise sit dormant in different jurisdictions.

“Multicurrency notional pooling sits at the more complex end of the spectrum,” acknowledges Matthieu Boyer, Treasury Advisor, Cash Management EMEA, BNP Paribas. “It is a product impacted by regulations that requires enhanced due diligence, and a thorough documentation process.” Yet, once established, the advantages are significant. Treasury teams no longer need to swap operational flows on a daily basis simply to keep positions balanced. FX cash management becomes more straightforward, daily hedging needs reduce, and visibility across both notional and physical structures becomes real-time and comprehensive.

Boyer points in particular to the removal of cut-off constraints as “a huge win” for corporates. Balances can be notionally offset across currencies regardless of local banking deadlines, meaning treasurers are less constrained by timing and can operate with a single, consolidated view of group-wide positions. “There are fewer FX swap transactions to perform, so there are fewer errors and less manual workload,” he adds. “Everything is built as part of an integrated structure.”

Cross-border interest optimisation provides a complementary layer by tackling trapped cash in various currencies – those pockets of liquidity that, for tax, regulatory or operational reasons, can be difficult to mobilise physically. By enabling revenues to be maximised across jurisdictions and currencies, it turns previously idle balances into active contributors to group-wide performance, without the friction of physical movement.

Taken together, these virtual offset solutions enable treasurers to build structures that are resilient without being too rigid. By reducing daily operational hedging and giving greater access to dispersed cash, they provide flexibility in how exposures are managed, while maintaining oversight and control at the centre.

The overall value of such tools lies in reducing friction and creating optionality. Treasurers can refine their optimal hedging strategies, but the solutions can absorb some of the unpredictability, smoothing the edges of exposure management.

Oversight remains paramount

To extract the maximum value from such automated solutions, governance is key. “Automation is not about replacing the treasurer’s decision,” emphasises Peis. “It reinforces controls through consistent checks, full traceability, and clear audit trails. We focus on facilitating clients’ liquidity decisions, ensuring their strategy, guidelines and constraints are executed efficiently, and we accompany them throughout the journey – but we are not making the ultimate decision for them.”

For Boyer, the degree of comfort depends on where the corporate stands on its treasury journey. “Some are already requesting these solutions in RFPs, either because they see the fit immediately or because they are curious. With clear explanations of requirements, adoption usually proceeds smoothly.”

In practice, automation enhances governance rather than undermines it. Decisions remain anchored in treasury policy, yet execution gains resilience, speed, and security. The treasurer retains authority, while the processes gain structure.

Integration and visibility

Importantly, though, none of these solutions can function effectively without integration into treasury systems. BNP Paribas provides that through its Connexis platform, which consolidates balances and reporting across currencies and banks.

“Clients can see their balances and structures in real-time, and consolidate information,” says Peis. Boyer echoes this, adding: “The client has full access to its balances, with a complete view of the notional and/or physical pooling they may have built.”

And this kind of visibility it is the foundation of control in volatile conditions. When forecasts falter, seeing positions clearly is the difference between reacting in panic and acting with purpose.

No single prescription

Looking ahead as to how the market might develop, both Peis and Boyer emphasise that there will never be one model to fit every corporate’s needs. Physical and virtual solutions are not alternatives to be chosen but modules to be combined according to each corporate’s geography, structure, and stage of centralisation.

“There is no universal model,” Peis insists. “It depends on the client’s internal structures, the geographies they operate in, and the centralisation journey they wish to achieve. Our role is to make integration work, so that clients don’t face the hard choice between physical and virtual but can combine them in a seamless way.”

Boyer frames it simply: “Each client builds a different combination with us, depending on what they can implement internally and what best meets their needs. Choice is key.”

Resilience in the age of collision

While treasurers cannot prevent currencies ‘colliding’, with the right tools at hand, they can help to shape how those collisions play out. Physical hedges keep cash moving, automated rather than idle. Virtual offsets create optionality, making balances more available and productive. Integration delivers the visibility needed to trust the structure.

As Peis puts it: “Automation streamlines decision-making but always within the treasurer’s framework. It gives them peace of mind that their structures are both secure and efficient.”

For Boyer, the outcome is pragmatic: “Once implemented, these solutions reduce workload, reduce errors, and give treasurers the visibility they need. They make multicurrency treasury manageable.”

So, while certainty may no longer be on the table, control is. And in volatile times, that distinction can make the vital difference to treasury teams.