In my opinion the solution is going to have to be to create an international credit guarantee society.
Also known as an International Clearing Union....
The fact is that since both sellers and buyers will benefit from a guarantee to international (or national, come to that) trade credit then both should pay an amount into a mutually owned pot (or provide collateral) to support the guarantee.
This is indistinguishable in effect from Keynes' International Clearing Union proposal at Bretton Woods. He proposed a Bancor "Value Unit" to be issued centrally whereby both debit and credit balances on international trade would be subject to charges....
So what we could achieve here with a "Peer to Peer" alternative architecture would be to disintermediate and decentralise Keynes' centralised proposal for a Global Central Bank issuing Bancors.
Instead we would create a global framework (not an organisation, with accompanying bureaucracy) within which "Risk-Management-Institutions-formerly-known-as- Banks" would operate as service providers.
In other words, to answer migeru's point
European Tribune - Comments - Letters of credit and p2p finance
Which makes me question banks' ability to "morph to a service provider role in order to continue to be relevant" as they are already unable to fulfill their current service provider role in existing peer-to-peer credit.
banks would no longer be involved in backing the guarantee at all: the sellers and buyers collectively would do that (back-stopped by governments).
The replacement for the Bancor (and for the US Dollar as global reserve currency) would IMHO be a Unit of energy - a "Carbon Dollar". "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Well, the clearing union would have "an organisation, with accompanying bureaucracy". Someone has to build and operate the systems. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
As you know, I have long believed that a partnership between a Cooperative of Service Providers and a Cooperative of Service Users is probably an optimal enterprise model... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Anyone can contribute a fraction of the capital backing the the guarantee - it doesn't have to be sellers or buyers, it could be unitised and sold, and the (non-redeemable) units traded in a secondary market. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
I'm reminded of the strange fact that Mega Corporations like Shell and BP appear quite happy to have the likes of the London Clearing House ("LCH") and now the proprietary silo
ICE Futures Europe Clearing
as a counterparty, when in fact LCH's (and ICE's) capital base isn't even a pimple on their financial arse.
I guess, these End Users have probably regarded LCH as having an implicit government guarantee and they may well have been right.
But since ICE Futures Europe operates For Profit it shouldn't be able to rely upon governments.... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Care to describe it in a little more detail?
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
No, no, the users pay a guarantee fee. The capital backing the guarantee is provided by whoever has capital around and wants to. Obviously, as it is in the interest of users that this is in place, users are the most likely sources of guarantee capital, but their countries could do it too, or individuals or institutional investors who are interested in a revenue source coming from trade guarantee fees. Users who have enough capital invested in the guarantee society would effectively be receiving a discount to their own use of the guarantee but that's the net effect of wearing two hats, user and capital provider. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
The capital backing the guarantee is provided by whoever has capital around and wants to.
I don't see too much of an appetite among investors for this after being stung by the credit derivatives/ credit insurance model.
It's a role for governments IMHO. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Which is why - yes, you're right - it should be reserved for governments.
