The Supply Chain and Foreign Exchange: Be Afraid, Be Very Afraid (Part 1)

Late last week, we got a note from a client that some funds due to us were wired. Our client wrote: "Your money has been transferred -- see below. Our forex traders warned us the pound will fall more as they (UK Gov) are printing more money this week and next." Oh, boy. There go the printing presses. But this time they have a distinctly British twang to them (I'd love to hear the confused intonation in the sounds of the Eurozone ones, mind you). It seems that the world's largest Western economies are nearly in a collective race to see who can have the loosest monetary policy of all, what with the need to keep sputtering economies and the Franco-Prussian dream of a common currency alive. For many of us in procurement and supply chain, the natural inclination might be to sit back and watch all this from the lens of a spectator. Wrong decision.

This week, I'll be sharing a few posts about the impact of FOREX markets on our sector -- an article I wrote while flying in a number of less-than-full planes last week across the United States (not a common occurrence in the past couple of quarters, but maybe a warning sign of things to come?). As a teenager and college student, I was fascinated by currencies and if a promised internship at AIG on a currency desk ultimately materialized -- it did not -- I probably would have gone down the FOREX path. No other market is as pure from the ability to look at both macro and micro events and numbers -- not to mention politics -- and make snap decisions based on gut, not to mention, now, with the help of financial models.

Yet for all of us sitting directly in the middle of the supply and demand side of the equation, in terms of real goods and services for our companies (or governments), FOREX matters for an entirely different set of real reasons. Even though we can laugh at the Trump publicity stunt from last week -- Trump accepted payment in gold instead of dollars for a down payment on a property lease -- the uncertainty and volatility in the currency markets not only can impact our procurement costs, but also demand and, of course, exports (and imports). Regarding Trump's situation, the above-linked story notes that, "in announcing the lease, Mr. Trump said it was a sign of the unfortunate standing of the United States and the U.S. dollar in the world that led him to do this."

Alas, we can laugh at Trump's move now, but it's not entirely far fetched that our suppliers might want to be paid in a different currency (or even medium) for contracts in the future.

Stay tuned as we continue to investigate the currency situation and it's impact on the buying (and selling) of real goods and services on a global basis.

Jason Busch

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