Nordea Identifies Top 5 FX Risks in Emerging Markets

Nordea Bank Abp has identified five significant hidden foreign exchange (FX) risks for businesses operating in emerging markets. Jana Poulsenova, Managing Director at Nordea Markets, warns that a combination of global economic slowdown, volatile commodity prices, a strong US dollar, and rising US interest rates is creating a challenging environment.

Geopolitical tensions are highlighted as a primary concern. Russia's invasion of Ukraine has significantly increased FX market volatility. Sanctions against Russia have impacted the liquidity of the Ruble and rippled through to other countries, such as Kazakhstan, where the withdrawal of Russian Sberbank from local markets has complicated operations for global banks.

Local regulations pose another significant risk, potentially leading to time-consuming administrative processes and trapped cash. In Turkey, for instance, new regulations aimed at curbing the Lira's depreciation have made it difficult for foreign counterparties to pay in EUR or USD, pushing many contracts into local currency.

Further risks include taxation, such as Brazil's Financial Operation Tax (IOF) on local currency exchanges, economic pressures like increased debt servicing costs due to a stronger dollar, and capital controls that can impede payment receipts. The fifth risk involves pressure on companies to use local currency, exemplified by China's efforts to promote the Yuan in international trade. Poulsenova and her specialist team at Nordea provide guidance to help companies navigate these risks and ensure the timely and safe settlement of cross-border payments in emerging markets.