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Marcelo Flora, Partner and Head of Digital Platforms at BTG Pactual, discusses FX management amid rising geopolitical tensions and a rising Chinese yuan.
Global Finance: In an environment where central bank decisions and carry trades significantly impact global FX markets, what unique value can a bank offer to its clients?
Marcelo Flora: Despite significant global progress in combating post-pandemic inflation, we can see differences in monetary policy cycles across economies as well as different approaches taken 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 the FX markets, especially in light of changing monetary policies and interest rate decisions across different economies. This includes guidance on hedging and risk management strategies to capitalize on opportunities and mitigate risks associated with carry trades. Tailor-made offers and strategies have become an important trend in corporate banking.
gf: How do geopolitical issues impact your clients’ FX strategies, and how do you address their concerns in this context?
Plants: Geopolitical issues can increase global economic instability and volatility in financial markets. During these periods, investors quickly redirect their portfolios, looking for safe haven currencies to reduce risk levels. This movement of capital to safer markets causes the strongest currencies to strengthen and other currency pairs to depreciate.
Against this background, it is essential to have a tailored approach to each specific need in order to understand the level of exposure and use BTG’s diversified hedging portfolio to analyze the best tailored solutions for each client. BTG research provides critical support to the sales team, helping our clients and other business areas make decisions and highlight potential risks and downside risks.
gf: As Brazil strengthens its role as the world’s breadbasket, what steps has it taken to meet the increasingly specific needs of customers in this sector?
Plants: Brazil’s agricultural sector is the cornerstone of the national economy, contributing significantly to GDP and exports. Annual credit requirements in the agricultural sector amount to one trillion Brazilian reals, which confirms the crucial role played by financial institutions in enabling the investment necessary to develop and modernize this sector. Our bank has been at the forefront providing tailored financial solutions to meet the specific needs of rural producers. BTG has a full rack of trade finance solutions to meet our clients’ needs. We offer e-commerce loans, pre-shipment and post-shipment loans to bridge the gap between our clients’ financial needs and their export receivables.
gf: Is there an increasing demand for currencies other than the US dollar? What guidance are you offering clients regarding this transformation?
Plants: The US dollar and the euro are still the main currencies used in global payments, but we can see a growing trend of altcoins. China has been the main player in trying to internationalize its currency, as it tries to create alliances around the world in order to increase the use of the yuan. China is using its position as a global trade leader to incentivize the use of the yuan in contracts and in export and import payments with Chinese counterparties. Using altcoins can be really attractive and reduce the overall transaction cost, but as a side effect, it can increase risk and volatility.
gf: How are artificial intelligence and other cutting-edge technologies helping to shape the future offerings in the forex market?
Plants: Technology has brought about a huge change in the forex market. The most significant impact was on trading. The Forex Sales Desk has developed a more efficient trading and execution tool. By leveraging artificial intelligence, we have significantly reduced the time required to close a foreign exchange transaction. In the coming year, we are already working on a solution to improve the customer experience by simplifying the recording of recipient information and evaluating how we can improve the questions we ask to increase assertiveness and speed up the entire approval process.