Trade finance is nearing a much-needed shakeup

EVERY DAY of the week thousands of visitors flow through Istanbul’s fragrant Spice Bazaar. They are a varied collection, local shoppers mingling with camera-wielding tourists. So are the products on offer. While many delicacies on display are Turkish-grown, one trader gets his berries from Iran, his walnuts from Chile and almonds from California. Another, asked if she went all the way to China to buy her jasmine tea, says wryly: “Of course not. Importers ship it here.”

Most commodities traded round the world still travel on merchant vessels. From Istanbul’s hills you can see them placidly converging on Ambarli, Turkey’s largest port. Less visible is the liquidity that makes those journeys possible. Four-fifths of global trade transactions, worth $15trn a year, rely on specialised loans or guarantees. This hidden world of trade finance is huge but poorly understood. It has long needed a shake-up, and a nascent revolution promises to unlock trillions in fresh capital. But trade wars are putting that Big Bang in peril.

Trade finance is one of the oldest jobs in banking. Millennia ago merchants in present-day Turkey exchanged cloth or copper for engraved tablets promising a later payment in silver. Trade credit today may be more sophisticated, but it still tackles the same problem: that exporters prefer being paid at the...



via The Economist: Finance and economics Business Feeds

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