08 December 2011
Capacity exchange development presents untapped opportunity for
London
The development of an innovative, global capacity exchange hub
in London could improve productivity by reducing marginal spare
capacity, stimulating innovation and providing an alternative to
conventional credit, according to a new report released today (8
December) commissioned by the City of London Corporation, Recipco
and the Economic and Social Research Council.
Capacity Trade and Credit: Emerging Architectures for
Commerce and Money highlights how businesses with spare
capacity in their own goods, services or infrastructure – often the
case in economic downturns – could utilise their surplus via an
exchange to ‘finance’ the purchase of other goods and services that
they need. Capacity exchanges have the potential to offer SMEs and
larger businesses an alternative credit stream in the face of a
challenging environment for conventional credit as banks rebuild
bank balance sheets.
According to some reports, 20% of global trade (over US$ 100bn)
takes place in non-monetary exchanges. Capacity trading across the
world has traditionally taken the form of simple bartering, which
involves two parties – commonly SMEs in local or national trading
networks – settling a transaction through a flow of goods or
services rather than sovereign currencies - or cash. This form of
exchange has traditionally been seen as less efficient than
monetary trade since it requires finding a suitable counterparty at
one point in time and is often contractually more complex.
In contrast, the internet-based multilateral exchange discussed
in the report could potentially lower transaction costs through
market clearing. The report finds that London is uniquely placed to
facilitate the expansion in scale needed for larger government and
multinational organisations to utilise capacity trading more
effectively.
Stuart Fraser, Policy Chairman at the City of London
Corporation, said:
“The UK has a long history of responding quickly to the
competitive challenges of new technologies and forms of commerce.
In a fast-changing world, now more than ever our future depends on
meeting these challenges.
“Innovative capacity exchanges with common tender have
particular relevance now as we face a weak economic recovery and
widespread constraints on the flow of credit to SMEs, in that they
have the potential to ease counter-cyclically the liquidity
problems facing businesses coming out of recession. But while the
advantages may be highlighted in a downturn, reducing the need for
traditional financing saves money and makes sense at any time for
businesses, large or small.
“Helping businesses to trade more efficiently and to depend less
on traditional financial credit is one of the exciting potential
benefits from such exchanges, as well as helping companies gain
better access to external supply chains and encouraging more
effective utilisation of capital. There is also a challenge and an
opportunity for government: to welcome such innovations, to foster
them and to help ensure that they reinforce Britain’s place in
global trade.”
Paul Boyle, Chief Executive of ESRC, added:
"It is clear from this report that capacity exchanges could help
economic performance and sustainable growth - including both
financial and environmental sustainability. Capacity exchanges can
reduce the environmental footprint of growth by making better use
of existing but under-utilised resources.”
James Fierro, Chief Executive of Recipco said:
“The report exposes the scope of what could be possible, if a
new economic architecture for the exchange of value were created to
facilitate trade and overcome some of the limitations of
traditional credit. Such a system of exchange could have a material
impact on stimulating economic growth and social development in the
UK and around the world.”
The study, authored by Z/Yen, also finds that such market
infrastructure would need to provide confidence that deals agreed
and contracts made will be honoured and delivery made in a secure
exchange using an acceptable trade unit. It finds that if capacity
exchanges were formally recognised, a more solid regulatory
framework might encourage more rapid development.
The full report and summary findings can be downloaded from 8
December from
www.cityoflondon.gov.uk/researchpublications
Ends
Notes to editors
- Press enquiries:
Sanjay Odedra, Press Officer, City of London Corporation
Tel 020 7332 1835 / Mobile 07831 542856
Email
sanjay.odedra@cityoflondon.gov.uk
- About the City of London Corporation:
The City of London Corporation is a uniquely diverse organisation.
It supports and promotes the City as the world leader in
international finance and business services and provides local
services and policing for those working in, living in and visiting
the Square Mile. It also provides valued services to London and the
nation. These include the Barbican Centre and the Guildhall School
of Music & Drama; the Guildhall Library and Art Gallery and
London Metropolitan Archive; a range of education provision
(including three City Academies); five Thames bridges (including
Tower Bridge and the Millennium Bridge); the Central Criminal Court
at Old Bailey; over 10,000 acres of open spaces (including
Hampstead Heath and Epping Forest), and three wholesale food
markets. It is also London’s Port Health Authority and runs the
Animal Reception Centre at Heathrow. It works in partnership with
neighbouring boroughs on the regeneration of surrounding areas and
the City Bridge Trust, which it oversees, donates more than £15m to
charity annually.
- About ESRC:
The Economic and Social Research Council (ESRC) is the UK's largest
organisation for funding research on economic and social issues. It
supports independent, high quality research which has an impact on
business, the public sector and the third sector. The ESRC’s total
budget for 2011/12 is £203 million. At any one time the ESRC
supports over 4,000 researchers and postgraduate students in
academic institutions and independent research institutes. This
collaborative report is one example of how ESRC is partnering with
business and government in areas of mutual priority. More at
www.esrc.ac.uk/
- About Recipco:
Recipco provides a solution for corporations, governments and
intergovernmental or non-government organizations to conduct
non-monetary trade in a way that overcomes the difficulties,
inefficiencies and risk associated with current bilateral barter
practices, while enabling them to increase sales, reduce expenses
and reduce dependence on cash and credit. The Recipco solution is
also a non-inflationary, private sector option that complements
governments' economic stimulus programs to support trade, helps
maintain employment and provides an alternative to traditional
financing methods. See www.recipco.com/
- About Z/Yen:
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/.