MNI INSIGHT: Central Banks In Talks To Support Trade Finance

--BOE/Treasury Supply Chain Finance Support Expected In Budget Wednesday

--Trade Finance In Focus For Next Wave Of Support Measures Due To Coronavirus

By David Robinson

     LONDON (MNI) - Central banks are in talks to facilitate access to liquidity

by companies suffering supply chain interruptions, with joint action expected by

the Bank of England and UK Treasury on Wednesday likely to be only one of a raft

of initiatives around the world to address the economic impact of coronavirus.

     MNI understands work is going on at national and supranational

institutions, and that one step for central banks such as the BOE could be to

accept trade receivables -- invoiced amounts owing to firms for goods or

services -- as collateral for liquidity operations. These would be presented by

banks providing trade finance and would allow the provision of targeted support

without adding to the strain on monetary policy.

     As supply chains become stretched, the aim is to ensure smaller firms with

business on their books but unable to complete orders can receive cash for their

invoices.

     Marc Auboin, Economic Counsellor at the World Trade Organisation, said that

while in 2009 central banks supported trade by discounting trade bills the devil

lies in the detail.

     "The question is which bills? Trade bills? In which form? Letters of credit

.. or receivables?" Auboin told MNI.

     The BOE list of eligible collateral at present has nothing on it with

regards to letters of credit or similar trade receivables, but one of the

lessons the Bank drew from the financial crisis was to improve its systems to

facilitate taking alternative forms of collateral when necessary.

     --2009 CRISIS

     In the 2009 crisis trade was supported by export credit agencies through

guarantees of payments or direct lending. A G20 plan provided USD250 billion in

guarantee capacity, with adjustments of central bank discount windows.

     BOE Governor designate Andrew Bailey made clear in evidence to the Treasury

Select Committee last week that some action was imminent and the focus is on

coordination between monetary and fiscal authorities.

     "It is quite reasonable to expect that we will have to provide collectively

some form of supply chain finance in the not very distant future, to ensure that

the effects of this shock from the virus are not damaging .. particularly to

small- and medium-sized firms. We will have to move very quickly to do that,"

Bailey said.

     Bailey said the level of availability of trade credit insurance lines was a

leading indicator of stress. He said he had been talking to the insurers and

that "They assure me that they will not cut lines before they can talk to us."

     If insurers were to pull back from the trade credit market the pressure

would mount on the authorities to step in.

     "It's quite clear in a situation like this, that we must act in a

coordinated fashion," Bailey said.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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