• William Laraque, Managing Director at US-International Trade Services


• 04.07.2016 07:30 am
undisclosed

Brexit is a sobering demonstration of what economic and market damage a superficial understanding and mismanagement of a country's financial markets and global trade can create.

At last the vast opportunities for peaceful international trade without the unidirectional imperative of mercantilism and the ravages of foreign currency fluctuation can be conceived of and implemented.  

The economic and political management of a country results in either a weakened currency vis-a-vis other currencies or to a strengthened one. A parallel but more psychological consideration of markets is determined by the perception of how well an economy and its related currency are managed. The strength or weakness of a currency determine how attractive are a country's products and services in the global marketplace. The political stability and adeptness with which an economy is managed, determine the extent to which investors are willing to invest in productive and other wealth-producing assets in a market. 

In the case of the post-Brexit pound, it has fallen to 1985 levels against the USD. This will render British products and services attractive in global markets. At the same time, Britain will be perceived as shallow and inept in the management of its economy and currency. This perceived ineptitude will have the effect of discouraging trade between Britain and other countries. It will also affect the willingness of countries to invest in a market denominated in pounds. Why? Because currency values are an accommodation among countries wherein it is agreed whether one currency is too strong and the products in its denomination are too unattractive relative to the currency of other countries and their goods and services. The accommodation affects investment as well. Investors are unlikely to plow cash into markets if the denomination of these markets results in a currency translation loss. The strength or weakness of a currency vis-a-vis another affects the bilateral trade balance among countries. A strong currency encourages imports into markets and empowers other countries to sell into such markets goods denominated in relatively weak currencies.

The Great Migration

The great migration in thought has begun whereby the utility of Fintech is not limited to payments, mobile or otherwise. The mediocre role to which small and limited minds have confined Fintech does not consider its most disruptive impact. Global payments pale in comparison to the settlement of what will be an estimated $85 trillion in global trade flows by 2025. Unlike payments, the settlement of global trade flows requires a deep and comprehensive knowledge of international trade. In order to be truly disruptive in regard to financial inclusion, Fintech must engage a comprehensive array of global trade facilitation services, from logistics to an understanding of applicable laws and regulations. To regard Fintech and its application to global trade solely as a technological problem, is myopic. Ignorance of processes and of global trade results in the kind of negative disruption which England will experience as London becomes just another financial center, an also-ran after Brexit, in comparison to New York and Frankfurt. Global trade is not necessarily a zero-sum game. It is, however a  competitive one. 

The Internet is an instrument of liberation so long as the minds engaging in its progress are not insular or steeped in mediocrity. This is indeed what we are seeing when the much larger opportunities in trade are disregarded and Fintech is confined to payments.

The lack of understanding in how e-commerce affects our global trade future, convinces as to the radical need to rethink how Internet-facilitated trade is conducted globally.