Week in Review

What We're Reading:

June 14, 2021

G-7 summit: Here’s a quick guide to everything you need to know. The leaders of the Group of Seven economies are about hold a three-day summit in the U.K. with climate change, the economy, the coronavirus pandemic and geopolitics set to be major talking points. (HSN)

Peru's Castillo says there is 'hope' as razor-thin margin keeps country on edge. Alessandro Cinque. Socialist presidential candidate Pedro Castillo said Peruvians are a "people of hope" on Sunday, with the country on edge as unofficial vote counts showed him and his conservative election rival separated by the thinnest of margins. (Reuters)

As Fed taper looms, global central banks eye their own exits from stimulus. Haunted by memories of past US interest rate hikes, the world’s central banks are laying the groundwork for a transition to life with less global stimulus, with many countries already signaling moves to the exit. (HSN)

EU warns UK it will react fast if UK goes it alone on Northern Ireland trade deal. The EU says it is prepared to respond if Britain acts unilaterally on trade arrangements for Northern Ireland. (DW)

Biden lays out plans for securing supply chains for “key products.” The Biden administration has called for tens of billions of dollars in funding for strengthening supply chains for critical goods, after publishing its wide-ranging 100-day review into supply chains for key products. (Global Trade Review)

US stresses Taiwan trade-relationship priority in first talks. The U.S. and Taiwan’s trade chiefs held discussions Thursday, with U.S. Trade Representative Katherine Tai emphasizing the importance of Washington’s trade and investment relationship with Taipei. (AJOT)

G-7 nations reach historic deal on global tax reform. Under the agreement, G-7 nations will back a global minimum corporate tax of at least 15%, U.K. Finance Minister Rishi Sunak announced in a series of tweets. (CNBC)

EU and UK reach fishing deal for 2020-21. The Council of Europe has approved the UK′s fishing opportunities and deep-sea stocks for 2020 and 2021 as part of the EU-UK Trade and Cooperation Agreement. (DW)

Retail cargo continues setting records as supply chains struggle to keep up with consumer demand. Imports at the nation’s largest retail container ports saw their busiest April on record and May could turn out to have set a new all-time record as vaccines allowed consumers to return to normal shopping patterns, according to the monthly Global Port Tracker report. (AJOT)

Bitcoin put in highest risk category in bank capital plan. Banks will face the toughest capital requirements for holdings in Bitcoin and other cryptoassets under global regulators’ plans to ward off threats to financial stability from the volatile market. (Bloomberg)

El Salvador makes history as the first country to accept Bitcoin as currency. The Bitcoin Law was passed by a "supermajority" in a 62-22 vote by the country's congress. (Entrepreneur)

ING Monthly economic update: Emerging from the shadows. US: The Fed looks set to pivot on inflation; Eurozone: Finally, ready for take-off; UK: Outlook positive despite virus resurgence; CEE: The big inflation build-up. (HSN)

EU-Mercosur trade deal could harm economic growth, researchers argue. The ambitious proposed free trade agreement between the EU and the Mercosur bloc of South American countries risks pushing member countries “away from sustainable growth and development”, academics argue. (Global Trade Review)

Automating risk functions for greater value creation. Risk functions were once considered tactical and reactive, and often seen as a roadblock to business decisions. Infusing risk management into corporate planning allows an organization to think about compliance responsibilities in a proactive and strategic manner—moving risk and regulatory functions from a back-office cost to a competitive advantage. (Risk Management Monitor)

Several nations are going through various stages of an election process at this time, and the implications are significant. This has been a very bad year for political leaders everywhere in the world due to the impact of the pandemic and lockdowns.

Those individuals in power simply could not win no matter what they did. A strict set on controls alienated those that chafed under these government rules and the economies of these nations suffered.

If the controls were too loose, levels of disease increased and death tolls mounted. No government managed to ride out this crisis, and the public has been willing to support just about anything that could be seen as an alternative.

In Mexico, mid-term elections serve as a referendum on the rule of Andres Manuel Lopez Obrador. In Germany, regional elections have tested the ability of the Christian Democrats to energize voters without Angela Merkel at the helm. In Peru, the contest between a radical left-wing neophyte and a corrupt former leader has become too close to call and may result in a second attempt at a vote. Similar tests are taking place all over the world, and very few paths are toward any sort of solution.

AMLO remains personally popular against all odds. He has presided over an almost total collapse of the system in Mexico and seems to be immune to responsibility. The economy is in full-on recession as serious as anything the country has seen since the 1930s. Most politicians of the left would react to this with a dramatic government response—additional spending, tax cuts and so on.

AMLO has reacted to the crisis with an aggressive austerity effort that plunged millions into poverty. The crime levels are higher than ever, the corruption he rails against is even more pervasive than before and relations with the U.S. and other Latin nations have deteriorated. Still, he has his cadre of staunch supporters but will that be enough to carry these regional elections?

In Germany, the question has been whether Armin Laschet can take control of the CDU after more than a decade of Angela Merkel and the rise of the AfD (Alternative for Germany). The regional elections showed that Laschet has passed his first test. The support received by the CDU beat the AfD back and strengthened the case for Laschet. There is still a conversation regarding who he will form a coalition with when the time comes. The Social Democrats are not willing to do another Grand Coalition and are weak in the polls in any case. That leaves the AfD and the Greens. There is no support for a coalition with the far right and that leaves the Greens, who are struggling to throw off the reputation as the “party of NO.” The success of the CDU in this election puts them in a better position than they expected to be.

The Peruvian election is down to two candidates that combined to secure less than 25% of the popular vote in the first round and have not gained much more since. Polls indicate that the vast majority will either not vote at all or spoil their ballots. There were 15 candidates in the first round, but nobody really caught fire.

Nearly half of the businesses in Great Britain that plan to stop processing outbound international payments are doing so due to the difficulty of tracking them, according to a Bottomline survey. About 40% plan to stop because they find it difficult to pay international suppliers on time.

These issues are acutely felt by small businesses, which are more hesitant than their enterprise counterparts to start making international payments (38% vs 10%).

These findings stem from Bottomline’s sixth annual Business Payments Barometer. Small businesses, rated cash collections as their top priority in light of ongoing uncertainties caused by the pandemic and Brexit.

Businesses Prioritize Keeping ‘Cash In’

For businesses of all sizes, priorities focus on keeping ‘cash in’ and centered on survival rather than business transformation and digital acceleration. In light of this, two-thirds (64%) of the companies are prepared to re-negotiate payment terms to maximize their cash flow. This figure drops to 52% for smaller businesses, which are less likely to have sufficient reserves to make these changes.

Almost one in two businesses surveyed had to accept new payment methods in 2020, with 30% claiming to have started receiving mobile payments during the pandemic as a way to remove the friction associated with cash collection.

Conversely, just under half of organizations claim their cashflow forecasts are rarely accurate, a figure which rises to 56% of enterprise organizations. Decisionmakers tend to use more than one method to manage cashflow, with 37% of small businesses still using manual calculations on Excel.

Small Businesses in the Dark About Payments Regulations

Despite clear benefits to help improve cash management, awareness of new payment initiatives and regulations remains low. Bottomline noted a consistent decline year on year in preparedness for payment regulations, with businesses at both ends of the spectrum losing confidence in open banking. Smaller organizations appear to be most in the dark, with only 38% of decisionmakers prepared to embrace open banking, compared to 66% of enterprise decisionmakers (down from 47% and 70%, respectively, in 2020).

Similarly, only 32% of small businesses have adopted real-time payments, versus 61% of enterprise organizations. About one-third state that they have not adopted and do not plan to adopt real-time payments moving forward, an increase of 14% from 2020.

When asked to rank their top-five drivers for change regarding payment processes, small businesses ranked regulatory changes to U.K. payments in eighth place versus enterprise organizations, which placed it in fourth.

Interest in crypto and decentralized finance (DeFi) rose sharply during the pandemic and investment accelerated, according to the World Economic Forum.

While DeFi has the potential to transform the financial system, it lacks a clear policy landscape that could help accelerate benefits and mitigate risks, the organization said.

The World Economic Forum released a report, the Decentralized Finance (DeFi) Policy-Maker Toolkit, to evaluate DeFi. The report provides an overview of DeFi, explores and illustrates benefits and risks with case studies, and maps out legal and regulatory responses. It is a collaboration with the Blockchain and Digital Asset Project at the Wharton School of the University of Pennsylvania and draws on contributions from an international expert group of academics, legal practitioners, DeFi entrepreneurs, technologists, global policymakers and regulators.

DeFi has been evolving since the launch of the Ethereum blockchain in 2015 and is a category of financial services based on blockchain’s distributed ledger technology. It does not rely on central institutions, and interest has risen sharply from both private and public sectors.

The report notes that the value of digital assets in DeFi smart contracts grew by a factor of 18, from $670 million to $13 billion in the past year. The number of associated user wallets grew by a factor of 11, from 100,000 to 1.2 million, and the number of DeFi-related applications grew from eight to more than 200.

“Following its rapid growth, and the price activity in crypto more generally, governments are closely watching cryptocurrencies and decentralized applications,” said Sheila Warren, deputy head of the Centre for the Fourth Industrial Revolution Network; Executive Committee, World Economic Forum.

To help credit professionals learn more about cryptocurrencies and blockchain, NACM and FCIB are presenting the webinar, Blockchain Technology & Decentralized Finance. The webinar will discuss the concepts, uses and opportunities associated with both. At the end of the presentation, the speakers, Anjon Roy and David Wasson, of Simba Chain, will explore how building a blockchain solution could enhance credit departments.

 Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations