Credit crisis limits trade

Banks world-wide are still having problems meeting importers’ and exporters’ need for financing, a new survey by the International Chamber of Commerce shows, a sign that effects of the credit crisis could continue to constrain the recovery in global trade.

The Paris-based business organization, in a report to be published Thursday, documents continued strains in the supply of trade finance, the low-profile combination of credit lines and guarantees that underpins the $15 trillion annual flow of global trade. “Global trade has been very badly affected by the lack of availability of trade finance,” Victor Fung, the chairman of the International Chamber of Commerce, said in an interview.

In recent months, world trade has been bouncing back from the depths it hit during the financial crisis, but remains well below pre-crisis levels. In January, the International Monetary Fund forecast that the volume of world trade in goods and services will grow 5.8% this year after shrinking 12.3% in 2009 – a much more optimistic prognosis than a few months earlier.

Whether trade continues to recover ultimately depends on whether consumers around the world start buying more goods that are traded across borders, but the chamber says it wants to ensure there aren’t barriers to such a rebound. “We’ve always feared the recovery would be slow, given the stresses on U.S. consumers,” Mr. Fung said.

As with other forms of bank credit in most of the developed world, access to trade finance has gotten somewhat better over the past year but isn’t back to pre-crisis levels. Bank lending is still shrinking in the U.S. and Europe, though it has rebounded in China and other Asian countries.

The Wall Street Journal April 2010

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The politics and economics of a falling dollar

It was at Bretton Woods in 1944 when Britain’s John Maynard Keynes and the United States’s Harry Dexter White conjured up the financial architecture for the global economy that served the world rather well from the end of World War II through the early 1980s. Since then, its shortcomings have been revealed by a series of financial crises that have become more severe and more frequent, with the fixes for one planting the seeds for the next.

Despite the best efforts of world leaders, a new and better architecture has proven elusive. At the center of that 1944 architecture, of course, was the U.S. dollar, which since has been the overwhelming currency of choice for central banks around the world for settling international obligations and managing exchange rates.

The preference for the dollar reflects not only confidence that it is a reliable store of value but also that it can easily be invested in a government bond market big enough that large amounts of cash can be moved in and out quickly, reliably and cheaply.

The dollar is used worldwide as the agreed-upon unit of exchange by producers and traders to price oil, minerals and other commodities. Because it is the currency most easily exchanged, the dollar is on one side or the other of 85 percent of the transactions on global currency exchanges.

And when foreign companies, foreign governments or foreign banks want to raise capital from foreign investors, they can often do so more cheaply and easily by issuing bonds denominated in dollars rather than in their currencies.

Given the trillions of dollars piling up in foreign central banks as a result of this spending spree, and given the long-term prospects for the decline in the value of those dollars, it is likely no surprise that foreign officials have been looking to diversify their portfolio. Indeed, that was just what they were doing in 2007 and 2008, until the euro crisis raised doubts about the next-likely alternative.

The Washington Post April 2011

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