Working Paper: CEPR ID: DP13661
Authors: Olivier Accominotti; Stefano Ugolini
Abstract: We describe how the structure and governance of international trade finance – the oldest domain of international finance – evolved from the Middle Ages until today. Trade finance products initially consisted of idiosyncratic assets issued by local merchants and bankers. The financing of international trade then became increasingly centralized and credit instruments were standardized through the diffusion of the local standards of consecutive leading trading centers (Antwerp, Amsterdam, London). This process of market centralization/product standardization culminated in the nineteenth century when London became the global center for international trade finance and the sterling bill of exchange emerged as the most widely used trade finance instrument. The structure of the trade finance market then evolved considerably following the First World War and disintegrated during the interwar de-globalization and Bretton Woods period. The reconstruction of global trade finance in the post-1970 period gave way to the decentralized market structure that prevails nowadays.
Keywords: trade finance; market structure; bill of exchange; letter of credit
JEL Codes: F1; F3; N2; N7; K12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| standardization of credit instruments (F34) | centralization of trade finance in London (F30) |
| centralization of trade finance in London (F30) | establishment of London as the preeminent financial center (N23) |
| collapse of international trade (F19) | reduction in trade finance availability (F65) |
| imposition of capital controls (F38) | reduction in trade finance availability (F65) |
| financial stability (G28) | trade finance accessibility (F39) |
| shocks to trade finance services (F65) | decreases in global trade volume (F69) |