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London – December 2011
New research carried out by Z/Yen on the feasibility and potential of establishing a capacity exchange hub in the UK was published on 8 December 2011. The report, commissioned by the City of London Corporation, Recipco and the Economic and Social Research Council, was referred to as a “milestone” in research in the sector of multilateral reciprocal trade. It highlights the potential for capacity exchanges to generate alternative credit systems for businesses, improve productivity and stimulate innovation in finance and business.
The report – “Capacity, Trade and Credit: Emerging Architecture for Commerce and Money” - explores existing and potential applications of multilateral reciprocal trade, including countertrade and corporate and retail barter. Reciprocal trade constitutes an estimated 20% (over US$100 billion) of global trade but contracts and negotiations tend to be lengthy and complex. The emerging multilateral reciprocal trade sector offers the potential to eliminate the inefficiencies of bilateral capacity exchange through the mechanism of common tender – an alternative means of exchange to sovereign currency which is not convertible to cash, earns no interest and can only be redeemed for goods and services within the capacity exchange.
The research concludes that multilateral reciprocal trade using common tender is an emerging sector with the potential to create complementary credit systems alongside traditional financial credit. These systems should increase trade and contribute to sustainable economic growth based on productive capacity rather than relying on banks to provide credit, and could generate wider social benefits. The report also finds that a clearer, more solid regulatory framework might encourage more rapid development of the multilateral reciprocal trade sector.
Z/Yen Group is the City of London’s leading commercial think tank promoting societal advance through better finance and technology. Z/Yen applies its risk/reward methodology in research on markets, best execution, liquidity, strategic planning (outsourcing, re-engineering, relocation) or performance evaluation. Working with others, including the City of London Corporation, Z/Yen has led several industry initiatives from the launch of Taskforce 2000 in 1996 to ongoing investment banking cost benchmarking clubs to creating the Global Financial Centres Index, the $15M London Accord ‘open source’ research cooperative into environmental, social and governance issues, the Farsight Award for long-term investment research and the Long Finance Initiative addressing the question “when would we know our financial system is working?” In November 2011, Z/Yen’s wider thinking was published by Michael Mainelli and Ian Harris as The Price of Fish: A New Approach to Wicked Economics and Better Decisions –www.zyen.com