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Pakistan calls on Asian Infrastructure Investment Bank for aid – Industry roundup: 27 October

Asian Infrastructure Investment Bank urged to aid Pakistan

Pakistan’s Federal Minister for Economic Affairs, Sardar Ayaz Sadiq has urged the Asian Infrastructure Investment Bank (AIIB) to increase support for reconstruction and rehabilitation work in his country. The Minister virtually attended the seventh annual meeting of the AIIB, which was formed in January 2016 as a multilateral development bank to improve economic and social outcomes in Asia and currently has 105 members, including 14 prospective members from around the world.

The minister spoke of the devastation caused by the recent floods in Pakistan, adding that it is one of the most vulnerable countries to the impacts of climate change despite contributing less than 1% to global greenhouse gas (GHG) emissions.

In order to “build back better”, the Minister encouraged the AIIB to build on its competitive advantage and play a pivotal role in financing investment in the recovery and the further development of sustainable infrastructure as an asset class.

India’s Finance Minister Nirmala Sitharaman on Wednesday said that despite exogenous threats, a well-targeted policy mix, major structural reforms and sound external balance sheet, have enabled Indian growth to remain resilient.

She agreed the need to enhance climate finance and said that Prime Minister Narendra Modi is actively leading India’s climate change response efforts through various programmes such as ‘Lifestyle for Environment’.

Sitharaman urged the bank’s management to further intensify private sector capital mobilisation and explore mechanisms to augment its lending capacity. Suggesting that the AIIB set-up full-fledged country offices, she also advised the bank to work towards expanding the scope of its mid-stream and upstream engagement, such as increased technical assistance to help clients translate strategies into investment plans.

MBridge multi-CBDC for cross border payments goes to development after pilot

The Bank for International Settlements’ (BIS) Innovation Hub Hong Kong has published its report on the MBridge Pilot, a multi-central bank digital currency (CBDC) initiative for cross border payments involving the central banks of China, Hong Kong, Thailand and United Arab Emirates (UAE).

Twenty commercial banks were involved and another six central banks participated as observers of the CBDC project. During the pilot, which ran for five weeks to 23 September, US$12 million in currency was issued and US$22 million in trade transactions were executed.

Following the pilot, MBridge is now being developed into a minimal viable product ahead of a production deployment. The pilot phase saw more transactions done via the People’s Bank of China (PBoC), in part because Hong and China started the pilot earlier than the other central banks. Additionally, the PBoC was the only bank that automated the integration of CBDC issuance and redemption with its domestic CBDC system.

The solution uses a custom shared permissioned blockchain, promoted as being developed by central banks for central banks. At the core are the four central banks that provide issuance and redemption of the CBDCs. 

Commercial banks can request the issuance of CBDC against reserves in their local currency at their local central bank and also redemption. Additionally, they can hold foreign CBDCs. Commercial banks can initiate peer-to-peer push payments for trade in any platform digital currency and are also able to execute FX payment versus payment (PvP) with other commercial banks.

SWIFT makes MonetaGo fraud prevention tool available to all

Financial technology solutions provider MonetaGo has launched its Trade Financing Validation Service into live production over the global SWIFT network, following a testing period that began in the second half of 2021 with 20 institutions in the US, the UK, Europe, Asia and Australia.

During the pilot phase, participating institutions put data from bills of lading, invoices, purchase orders and warehouse receipts through MonetaGo’s Secure Financing system, which flags up instances of duplicate documents being registered or financed by more than one lender.

Following completion of the pilot, the service is now available to more than 11,000 institutions on the SWIFT network and has received a strongly positive response from industry players.

MonetaGo’s Secure Financing system leverages technology to prevent duplicate financing in near real-time. Neil Shonhard, CEO of MonetaGo, said: “Duplicate financing, through the reuse of the same documents with multiple lenders, is a hidden problem in trade finance. Many such frauds go undetected because financial institutions cannot check with each other if a transaction has been financed.

“There is now a global standardised system to check duplicate financing. Going further, the additional authentication services availed through the same system will provide greater assurance to lenders on the integrity of their financing transactions.”

Digital fingerprints of the documents used in trade finance are created by using a hashing algorithm, and these fingerprints are registered in a global hash registry which acts as a secure unified repository. If the same document is registered on the system by more than one lender, the system will flag all duplicates after the first unique instance is registered.

Shirish Wadivkar, head of wholesale payments and trade strategy at SWIFT, said, “The Trade Financing Validation Service, provided with MonetaGo, is a great example of how our API platform can be harnessed to provide a single solution to help banks tackle fraud and financial crime at the international level.

Atul Jain, Global Co-Head for Trade Finance and Lending at Deutsche Bank, added, “By using the SWIFT network as a global access channel to validate trade finance transactions, banks, both large and small, can do their part in helping further combat global financial crime.”

Central Bank of Turkey promises digital currency launch in 2023

Turkey has confirmed plans to launch a central bank digital currency (CBDC) next year. Turkey’s Presidential Annual Programme for 2023, presented this week by the Presidential Strategy and Budget Directorate, contains the discussion of a CBDC.

The announcement came after the Central Bank of the Republic of Turkey (CBRT) announced in September 2021 that it was considering the issue of a CBDC to complement its existing payments infrastructure, in a project entitled “Central Bank Digital Turkish Lira Research and Development.”

The Balance of Payments section of the programme, under the sub-heading of Policies and Measures, stated that a “blockchain-based central bank digital currency will be put into practice.” The responsible institution is the CBRT, with the cooperation of the local Ministry of Finance and Scientific and Technological Research Institution.

“The Digital Turkish Lira system will be integrated with digital identity and FAST,” the official report stated. FAST is a payment system operated by the Turkish central bank. The report also stated that the CBRT will carry out the research and development efforts and testing of its CBDC in collaboration with other banks.

ECB follows the Fed with second 0.75% rate hike

The European Central Bank (ECB) has followed the lead of the US Federal Reserve and announced its second successive major interest rate increase in a row, underlining its determination to stamp out resurgent inflation.

An increase of 0.75% basis points (bps) was regarded by analysts as the most likely outcome of the meeting based on public comments from bank officials, despite the unpopularity of rising borrowing costs among European politicians, including new Italian prime minister Giorgia Meloni.

The central bank’s 25-member governing council raised its key benchmarks by an unprecedented 0.75% to 1.25% at its previous meeting on 8 September and the further increase to 2% in the main rate and 1.5% in the deposit rate takes them to the highest level in more than a decade to tackle record eurozone inflation.

In its statement, the ECB said: "The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation. The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.

"Inflation remains far too high and will stay above the target for an extended period. In September, euro area inflation reached 9.9%. In recent months, soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand have led to a broadening of price pressures and an increase in inflation."

New index planned for Egypt’s pound

Egypt has announced plans to develop a new indicator for its currency, the pound (EGP) and add instruments to hedge against risks, in a departure from the previous policy of keeping the currency’s value stable around the dollar.

“We will make an index for the Egyptian pound through a group of other currencies in addition to gold in order to change the culture that we are linked to the dollar,” Hassan Abdalla, the central bank’s acting governor, said this week at an economic conference in Cairo, without providing details.

The comments came at an event in which officials were candid about spotlighting past policy shortcomings, reflect a focus on revamping Egypt’s currency exchange system in the country. For years, theEGP had been kept largely stable against the US dollar, a costly effort that also required interest rates to stay elevated.

Abdalla became acting central bank governor in August after the surprise resignation of his predecessor, long seen as a supporter of a stable currency.

But since Russia’s invasion of Ukraine sparked an exodus of foreign investors in its local debt and triggered a devaluation in March. Investors have also been bracing for a second wave of depreciation, with the government days away from agreeing to a new loan from the International Monetary Fund (IMF), which favours a more flexible exchange rate.

Officials have already indicated that they prefer a more flexible currency to support an economy whose biggest trade partners are China and Saudi Arabia. The challenge though is how to break the mindset that remains fixated on the EGP’s value against the dollar and regards the exchange rate as a barometer of the health of the broader economy.

MENA trade exposed to “unique” criminal risks

Banks providing trade finance products, including standby and back-to-back letters of credit (LCs), are exposed to unique financial crime risks in the Middle East and North Africa (MENA) region, claims a report from the Global Coalition to Fight Financial Crime (GCFFC), a public-private anti-money laundering (AML) partnership.

Trade in all markets can be an “attractive way to launder the proceeds of crime or evade sanctions”, but the MENA region “exhibits its own specific typologies that reflect the unique risks that transit this geography”, says the report.

Authors include Nishanth Nottath, head of AML at Mashreq Bank, Channing Mavrellis, illicit trade director at Global Financial Integrity, and Fahad Haque, HSBC’s regional head of sanctions for MENA and Turkey. 

“Countries that are large facilitators of trade with a thriving business market and mature financial infrastructure are more vulnerable to the threat of trade-based financial crime,” the authors write.

“The Middle East epitomises the concept of a trade hub, connecting the East, West and Africa with its prime geographic location, advanced economies, and long and rich history of trade.” 

The MENA region is particularly exposed to transhipment risks, where cargo is moved from one vessel to another before being moved onwards, due to its proximity to sanctioned countries such as Iran and Syria, as well as the maritime trade opportunities presented by Iran’s geographical location.

The GCFFC report identifies several risks associated with trade finance instruments across the wider region, and urges banks to use its guidance as a “compendium of knowledge” to tackle the movement of illicit funds.

Kyriba adds liquidity planning platform to assist CFOs with cash forecasting

Kyriba, the cloud-based finance and IT solutions group, has launched Liquidity Planning, described as “a totally reimagined cash flow planning and forecasting solution. Liquidity Planning unifies financial planning and analysis (FP&A), working capital and treasury data across multiple scenarios, giving CFOs data, insight and actionability to accurately manage the cash lifecycle and improve the accuracy of free cash flow projections.

“Forecasting has changed. CFOs must plan liquidity and free cash flow against multiple risk scenarios, and they are demanding data and analytics to deliver forecast accuracy in real-time,” said Bob Stark, Global Head of Market Strategy at Kyriba. “The cost of ineffective forecasting has risen to unprecedented levels, with CFOs losing millions because they lack the tools to manage enterprise liquidity.”

Kyriba highlighted the following innovatory features of the Liquidity Planning Platform:

  • Long Term Planning: Consolidated forecast planning, integrating FP&A, Treasury, A/P and A/R to extend forecast horizons by at least 12 months to more efficiently reach Free Cash Flow objectives
  • Forecast Scenario Modelling: Simultaneously manage multiple cash forecasts in parallel and model against liquidity planning and risk scenarios
  • Liquidity Analytics: Real-time data visualisation and simulation for cash, investing, borrowing and counterparty analysis to improve liquidity resilience against economic volatility.

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