Long aware of cryptocurrencies, especially in light of bitcoin's recent surge in value and popularity, governments have been forced to change regulations and consider changing their own currencies in the process. Recently, the U.S. government introduced Senate Bill 1241 to change the language around the prohibition of money laundering. The proposed bill slightly alters the meaning of the term "money laundering" to criminalize concealment of transactions—in turn, criminalizing cryptocurrencies such as bitcoin for the lack of visibility available into their distributed ledger. Additionally, the United States and other countries are looking at sales tax violations (and taxation in general) of bitcoin-denominated transactions, since tax evasion is easier to commit with the current lack of governmental access and visibility.

Most important, governments are working to create their own digital currencies. Currently, the United States Federal Reserve is working on a distributed ledger technology (DLT) project to develop a new clearing and settlement service. In what would be a great move in taking the currency market from the 18^th century—when Congress first authorized the issue of the dollar—into the 21^st century, the Federal Reserve Bank is looking to leverage blockchain technology to create a "digital dollar."

The Fed isn't the only governmental institution looking to harness the potential of digital currencies. Earlier this year, the Swiss Exchange and Nasdaq announced a collaboration to provide DLT; China committed to developing and implementing DLT; Russia is working to launch the CryptoRuble by January; and the European Parliament called for the creation of a horizontal DLT Task Force to take a further look at the benefits and regulations that would come along with implementing distributed ledger technology.

The impact of companies around the world adopting blockchain-based funds transfer mechanisms could be faster, cheaper transactions—not just domestically, but across borders as well. As a result, corporations will have to work to effectively manage future currency exposures at the accelerated speed of transactions. Complete automation and straight-through processing will become mandatory, not only for treasury departments but for all areas of finance.

2. Tax Reform Could Strengthen the U.S. Dollar

A year into Donald Trump's presidency, the U.S. dollar has weakened—something that Trump had vowed to do before he took office. On the day of his inauguration, the U.S. Dollar Index (USDX) closed at 101.17. On April 12, Trump again proclaimed that the U.S. dollar (USD) was getting too strong and that he favored lower interest rates. He saw the strong dollar as hurting the competitiveness of U.S. companies doing business abroad and hindering the United States' ability to reduce its trade deficit with countries such as China.

Since then, the dollar has weakened as desired. By early December, the USDX had fallen to just over 93. However, in 2018, we could see a renewed strengthening of the dollar as the U.S. House and Senate work to pass final legislation of the sweeping tax overhaul plan proposed in September.

The hope with the tax reform is that it will leave more money in corporate and consumer pockets, leading to increased spending that might, in turn, stimulate the economy and incentivize job creation in the United States. If all works as planned, though, prices could be driven up within the U.S. economy, and stronger growth could cause the dollar to strengthen again as non-U.S. entities buy greenbacks to purchase American assets.

Additionally, interest rate hikes generally lead the value of currencies. With the Fed expected to continue raising interest rates, we can expect those changes to further support the strengthening of the dollar.

Such changes could bring back the usual issues associated with a strong dollar, including difficulty increasing exports. Most notably, more than half of the S&P 500 earn more than 50 percent of their revenues abroad, so a strong dollar could negatively impact their earnings if they are not properly protecting their currency exposures.

For these companies—and for their investors—a strong dollar would mean decreased revenue, especially for companies that aren't managing their dollar exposures. For example, consider a business that has substantial income denominated in euros. With a strong dollar, the company is going to get fewer dollars for every euro it earns. If it used to get $1.50 per euro and now gets $1.25 per euro, its income statement will reflect 17 percent less cash for its euro income. Such a swing could negatively impact companies from the top all the way to the bottom line of the income statement.

In 2018, CEOs and CFOs are going to be asking their treasurers what can be done to protect against eroding revenue. Treasury teams that are managing their entire basket of currencies and mitigating their currency exposure via internal-exposure elimination or hedging will be better protected no matter which way the dollar turns.

3. The Midway Point for Brexit

We are currently more than halfway through Brexit divorce talks, with the Britain/European Union split officially culminating on March 19, 2018. Last summer, Morgan Stanley predicted that the pound will be worth less than the euro in 2018, as a result of weak economic growth and increasing political uncertainty. This shift would make imports more expensive for British consumers and businesses.

Such uncertainty is never good for an economy, and the pound sterling has continued to slip, especially as reports come out that conservative members of parliament doubt the abilities of British Prime Minister Theresa May.

This uncertainty has manifested itself in an uprooting of companies from the U.K., including Goldman Sachs' recent leasing of office space in Frankfurt as it looks to continue operations across the EU after Brexit. Most recently, Aston Martin said it might have to stop production in the U.K. if that country doesn't have a deal when it splits from the EU, as the company's costs for getting its models approved for EU sales would increase substantially.

If a hard Brexit does occur, its impacts on the pound will not be British companies' only concern. Accurate, complete, and timely exposure data can enable multinationals to manage their exposures in preparation for any unexpected currency movements. However, Brexit's proposed physical borders, increased expenses for imports, and other trade barriers introduce uncertainty in facets of business that can't be fully managed in advance of the split.

The changing political landscape will have an effect on how companies handle importing materials and exporting goods. Import costs are already on the rise, and as a result, U.K.-based companies are looking to obtain domestic resources, instead of outsourcing labor or importing goods. If the exchange rate does worsen, it will drive up the cost of pharmaceutical drugs and increase spending.

These growing issues may even lead some companies to scale back or pull their business out of the U.K. The appeal of having subsidiaries in Britain will dwindle once the U.K. is no longer a member of the EU, especially as some multinationals relocate their workforce to more euro-centric cities. In an effort to increase movement away from the U.K., EU member states like France, Germany, the Netherlands, and Switzerland are changing regulations and taxes to make themselves more attractive to corporations as the official split draws nearer.

In contrast to the troubles in the U.K. and the weakening of the pound sterling, the euro has been boosted by recent events, including the elections in Germany and the Netherlands, which people were originally concerned could negatively impact the euro. Ultimately, the show of unity by these euro countries to remain members of the European Union has strengthened the Eurozone. And as more corporations look to move from London and other areas of the U.K. to EU member states, it is likely that the Eurozone will continue to perform well economically, while it is forecasted that the value of the pound will depreciate relative to the euro.

The Answer to Uncertain Currency Markets

It is reasonable to predict that the evolution of digital currencies, U.S. tax reform, and Brexit proceedings will all have an effect on global currency markets in 2018. In addition, there is still much that we do not know. Although we can make educated guesses, currencies can be impacted, either negatively or positively, by any of a wide range of global events. As such, it is not far-fetched to think we might return to more volatile markets in 2018.

Changing regulations for trade or tax reform cannot always be avoided. But corporations can circumvent impacts from volatile currency movements by becoming more currency-aware. One cannot predict the future, but one can be prepared for it.

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Wolfgang Koester is the CEO and co-founder of FiREapps. He has more than 30 years of extensive experience in currency markets and working with numerous global Fortune 1000 companies and government entities. He is a frequent speaker at industry and academic events, and his work has appeared in The Economist, The Wall Street Journal, Financial Times, Treasury & Risk and AFP Exchange, among other industry publications. He is a regular commentator on CNN, CNBC, Fox Business, and Bloomberg.