RESEARCH REPORT en Report prepared for the City of London Corporation, ESRC and Recipco by Z/Yen Published December 2011 Capacity Trade and Credit: Emerging Architectures for Commerce and Money DECEMBER 2011 RESEARCH REPORT en Report prepared for the City of London Corporation, ESRC and Recipco by Z/Yen Published December 2011 Capacity Trade and Credit: Emerging Architectures for Commerce and Money Z/Yen Group Limited 90 Basinghall Street London EC2V 5AY United Kingdom Tel: +44 (0) 207 562 9562 www.zyen.com City of London Economic Development PO Box 270, Guildhall, London, EC2P 2EJ www.cityoflondon.gov.uk/economicresearch Capacity, trade and credit: emerging architectures for commerce and money is published by the City of London. The author of this report is Z/Yen Group Limited. This report is intended as a basis for discussion only. Whilst every effort has been made to ensure the accuracy and completeness of the material in this report, the City of London and the author, Z/Yen Group Limited, give no warranty in that regard and accept no liability for any loss or damage incurred through the use of, or reliance upon, this report or the information contained herein. http://www.cityoflondon.gov.uk/economicresearch This report has been jointly sponsored by the City of London, the Economic and Social Research Council and Recipco Holdings Limited.1 December 2011 © City of London PO Box 270, Guildhall London EC2P 2EJ 1 Recipco™, Capacity Exchange™, Universal Trading Unit™, UTU™ and related logos are registered trademarks or trademarks of Recipco Holdings Ltd. in the U.S., U.K., and/or other countries. Table of Contents CITY OF LONDON FOREWORD .. ................................................................................................ 1 UK TRADE & INVESTMENT FOREWORD ................................................................................................ 3 1 EXECUTIVE SUMMARY ................................................................................................................ 5 2 PROJECT BACKGROUND .......................................................................................................... 21 2.1 CAPACITY EXCHANGE CONCEPT ................................................................................................. 21 2.2 OBJECTIVES AND SCOPE ............................................................................................................. 21 2.3 APPROACH AND METHODOLOGY ............................................................................................... 23 2.3.1 Interviews .......................................................................................................................... 24 2.3.2 Survey ................................................................................................................................ 26 2.3.3 Workshops and symposium ........................................................................................... 27 2.3.4 Structure of the report .................................................................................................... 27 3 CONTEXT OF THE RESEARCH .................................................................................................... 28 3.1 RECENT FINANCIAL CRISES .......................................................................................................... 28 3.2 COPING MECHANISMS IN TIMES OF CRISIS - NEW TYPES OF MONEY .................................................. 29 3.2.1 Community, credit and alternative currencies .......................................................... 29 3.3 EMERGING ARCHITECTURES OF TRADE .......................................................................................... 31 3.4 TECHNOLOGICAL DEVELOPMENTS ............................................................................................... 32 3.5 CONCLUDING REMARKS ............................................................................................................. 34 4 CAPACITY ................................................................................................................................. 35 4.1 CONCEPT DEFINITION ................................................................................................................. 35 4.2 DEFINING CAPACITY UTILISATION ................................................................................................. 35 4.3 MEASURING CAPACITY UTILISATION .............................................................................................. 35 4.4 ADDRESSING THE CAPACITY PROBLEM .......................................................................................... 37 4.5 OUTPUT GAP ANALYSIS ............................................................................................................... 39 4.6 WHY TRADE? ............................................................................................................................. 41 4.7 IMPLICATIONS FOR A CAPACITY EXCHANGE .................................................................................. 42 5 TRADE ........................................................................................................................................ 43 5.1 CONCEPT DEFINITION ................................................................................................................. 43 5.2 WHO TRADES WHAT ................................................................................................................... 43 5.3 TRADE FACILITATORS ................................................................................................................... 44 5.4 BENEFITS OF TRADE ..................................................................................................................... 46 5.5 RECENT TRENDS IN INTERNATIONAL TRADE ..................................................................................... 46 5.6 IMPLICATIONS FOR A CAPACITY EXCHANGE .................................................................................. 47 6 CREDIT ....................................................................................................................................... 49 6.1 CONCEPT DEFINITION ................................................................................................................. 49 6.2 CREDIT AND CAPACITY – WORKING CAPITAL FINANCE ................................................................... 50 6.3 CREDIT AND TRADE – TRADE FINANCE .......................................................................................... 54 6.4 SUPPLY, DEMAND AND CREDIT AVAILABILITY .................................................................................. 57 6.5 CREDIT AVAILABILITY – PERCEPTIONS AND REALITY ......................................................................... 58 6.6 EMERGING ALTERNATIVES TO CONVENTIONAL DEBT FINANCE .......................................................... 59 6.7 IMPLICATIONS FOR A CAPACITY EXCHANGE .................................................................................. 60 7 MONEY ...................................................................................................................................... 61 7.1 CONCEPT DEFINITION ................................................................................................................. 61 7.2 FORMS OF MONEY ..................................................................................................................... 61 7.3 SOVEREIGN CURRENCIES ............................................................................................................ 63 7.4 CREDIT AND DEBIT SYSTEMS – MONEY IN COMMUNITIES .................................................................. 64 7.5 CREDIT AND DEBIT SYSTEMS - MONEY IN TRADE .............................................................................. 65 7.6 THE COST OF MONEY .................................................................................................................. 66 7.7 IMPLICATIONS FOR A CAPACITY EXCHANGE .................................................................................. 68 8 EMERGING ARCHITECTURES FOR TRADE ................................................................................. 69 8.1 COUNTERTRADE ......................................................................................................................... 70 8.1.1 Typology of countertrade .............................................................................................. 70 8.1.2 Government involvement in countertrade ................................................................. 72 8.1.3 Drivers and motivations .................................................................................................. 74 8.1.4 Criticisms of asserted benefits of countertrade .......................................................... 75 8.1.5 Current and future prospects ........................................................................................ 76 8.2 MULTILATERAL RECIPROCAL TRADE - MODERN AND ORGANISED FORMS OF BARTER .......................... 76 8.2.1 Corporate barter ............................................................................................................. 77 8.2.2 Retail barter ...................................................................................................................... 79 8.2.3 Current situation .............................................................................................................. 81 8.2.4 A critical look