FROM THE EDITOR
Contrary to previous expectations of a quick resolution, the war in Ukraine has dragged on. Going forward, there are really two possibilities. First, an agreement is reached between President Vladimir Putin and his Ukrainian counterpart, which accepts the limits of Nato as being the boundaries of Ukraine. Second, the war leads to further chaos, dragging European Union member states into the conflict, risking a global surge. Regardless of how this saga ends, one thing is certain – it will change the liberal world order. The decades ahead will be highly polarised with tensions between the alliance of western democracies on the one hand and the authoritarian regimes of Russia and China on the other. Other countries may be forced to make difficult choices. What form the new order will take, is difficult to predict but it will, most likely, affect strategic alliances, global trade and investment and perhaps even financial markets.
One outcome in the longer term would be an impact on the dollar. Since the 1970s, the United States dollar has been the dominant global currency and the principal medium of exchange between nation states. This is largely on account of a surge in global demand for the greenback, caused by the introduction of the petrodollar. Now, over 70% of dollars in circulation remain outside the United States. It all began when oil was priced in dollars by Saudi Arabia, on the persistence of the Nixon administration in exchange for security guarantees, and followed quickly by other petroleum producing states.
Since the 1970s, the US dollar has been the principal medium of exchange between nation states. This is largely on account of the demand for the greenback caused by the introduction of the 'petrodollar'.
The global demand for dollars has ensured its overriding position and enabled America to finance its deficits cheaply. Most oil producing countries run large trade surpluses, investing their savings in US Treasury. Consequently, American administrations and households have been able to borrow cheaply. But this is not a one-way street. In exchange, the United States has, over the last several decades, provided security guarantees to other nation states and maintained a liberal world order that allowed free-trade, investment and consequently prosperity to spread across the world.
Over the years, analysts have argued that other currencies would begin to pose a challenge to the dollar’s dominance. Initially the euro was considered a strong possibility but that never really materialised. Recently, cryptocurrencies have attracted investor interest and, some would argue, may eventually pose a threat. However, many of them come with inherent problems and are not likely to replace the dollar in a hurry, or ever. The most important reason for this is that there are simply not enough of the alternatives in wide circulation, to provide a seamless medium of exchange for trade and investment. But now things appear to be changing with the Chinese yuan emerging as a candidate.
For instance, whilst Saudi Arabia previously dealt exclusively in dollars for its oil, it has more recently been in talks to trade in yuan. This will be a difficult step to take. Gulf monarchies are used to getting subsides and payments in dollars and splurge on assets overseas. The issue is – will the yuan be seen as a safe currency for them to still be able to do so?
China is trying very hard to maintain stability in its yuan but it is far from a reserve currency, let alone a transparent one. If Saudi Arabia were to go through with its decision, it would constitute a significant step away from historical allegiances. But, the wheels of change are in motion and Covid and Ukraine have just brought that timeline closer to provide an alternative to the petrodollar.
In the longer term, as more countries begin to accept an alternative mechanism to price oil and other traded goods, it will get harder for the dollar to maintain its dominance.
Following Russia's invasion of Ukraine and the imposition of sanctions, Russian banks have been pushed out of the Swift system making it impossible for them to buy and sell dollars in exchange for their commodities. Russia could theoretically barter its oil with China through a rouble-yuan mechanism, avoiding the dollar as the medium of exchange. In any case, China, which considers itself an economic and military super-power, is preparing its own version of Swift although it has failed to take-off as yet. For now, China appears to be treading cautiously as it values stability above everything else. A switch away from the dollar would be perceived as an open challenge to the supremacy of the United States and its currency, risking the imposition of sanctions. But in the longer term, as more countries begin to accept an alternative mechanism to price oil and other traded goods, it will get harder for the dollar to maintain its dominance.
The pace of change, in the final count, depends on the determination of three countries – China, Russia and Saudi Arabia. Russia, burdened with sanctions, is practically at war with America. It is pushed against a wall and left with, what it considers, few good options. The Saudis feel mis-treated by the Biden Administration, which has been unwilling to support their war in Yemen and has reduced the diplomatic importance of Riyadh. Finally, China believes its time has come to remerge, after two centuries of being in the shadows, as the dominant global power and occupy its rightful stature as the Middle-Kingdom – a place defined as being between the Heavens and earth. Whilst it is unlikely that all three will come together in a hurry to create an alternative mechanism that replaces the petrodollar, it is for the first time in decades that serious thought is being applied to this matter.
Adit Jain, Editor
Many businesses have been on a quest to become data-driven for the better part of the last decade, and for good reason. The end-goal might be to gain competitive advantage, build operational efficiencies and effectiveness, or scale up. Alternatively, the aim might be to become more agile, develop the ability to take more informed decisions, such as by identifying and leveraging business opportunities (or risks) sooner. For still others, it may be about driving innovation and value-creation or optimising business execution. However, becoming data-driven is not an easy task. Companies that succeed in this domain have one thing in common: their CEOs are actively engaged in data initiatives, drive digital transformation, encourage employees to embrace advanced analytics, and oversee strong governance processes. A fine example of such a company is Aditya Birla Health Insurance Company (ABHICL), led by its exemplary CFO-turned-CEO, Mayank Bathwal.
As companies transform for the digital age, Finance teams are under significant pressure to add value and take on more of a business partnering role. The demands put on CFOs are only expected to increase, requiring them to be deeply involved in stakeholder engagement, as well as to proactively identify and manage new commercial opportunities. To be successful in their roles, CFOs therefore need to be skilled in much more than just financial management, and demonstrate capabilities in communication, business acumen and in terms of leading a strategic vision.
The 2022 Union Budget will be pivotal in defining the way forward for the Indian economy amidst a continuing pandemic. Before the recent surge in Covid cases, the economy was getting back on track: GDP growth in the September quarter was 8.4% and most high-frequency indicators were at or above pre-pandemic levels. However, economic activity and business sentiment may have taken a short-term hit due to Omicron, and there could be future waves to contend with. Given these circumstances, what were the government’s priorities in this Budget? Where will it get the resources to spend? To decode these issues and take stock of India’s economic trajectory, we invited Ananth Narayan, Associate Professor of Finance at SP Jain Institute of Management and Research, to share his views at a recent joint session of the India CEO and India CFO Forums.
In November 2021, SEBI notified several important changes to the regulatory regime around related party transactions (RPTs). These include: broadening the definition of ‘related party’ to include entities belonging to the promoter group; expanding the list of RPTs that require approval from the Audit Committee; and tweaking the materiality thresholds. At a recent session of the India CFO Forum, Bharat Vasani, Partner – General Corporate, Media and Entertainment at Cyril Amarchand Mangaldas, provided a bird’s-eye view of these amendments and their implications for businesses.
The rollout of the Insolvency and Bankruptcy Code (IBC) in 2016 brought a gust of optimism for lenders. Five years later, laments about low recovery rates, high liquidation percentages and lengthy delays are common. The latest data indicate that, as of June 2021, the recovery rate in 396 cases where a resolution plan was approved was just 33%. Out of 2,850 closed cases, 47% went into liquidation. Further, 75% of ongoing cases have crossed the 270-day limit set by the IBC for completing the resolution process. Proponents of the new law, however, continue to believe that things will get better with time. What are some urgent steps that must be taken to strengthen the process? What are some pivotal milestones expected over the next few years? At a recent webinar of the India CFO Forum, we invited V Ranganathan, who serves as an Independent Director in four public companies, and who has over 40 years of variegated experience in corporate governance, to provide a view on these issues.
Social media (SM) has become an integral part of our lives, and has in many ways redefined fundamental paradigms of speech, expression, identity, privacy, security and even how business is conducted. It has emerged as a platform for societal influence, moving beyond its traditional role as a communication tool. At the same time, there is a growing backlash against social media giants from regulators, activists, the traditional media and other sections of society. At a recent joint session of IMA India’s CEO and CMO Forums, Santosh Desai, Managing Director & CEO of Futurebrands, a brand and consumer consultancy company, spoke of the changing role of social media in society and the potential implications for business.