The EconomistOctober 26th 2019 Finance & economics 671E
verydayoftheweekthousandsofvisi-
tors flow through Istanbul’s fragrant
SpiceBazaar.Theyarea variedcollection,
local shoppers mingling with camera-
wieldingtourists.Soaretheproductson
offer.Whilemanydelicaciesondisplayare
Turkish-grown,onetradergetshisberries
fromIran,hiswalnutsfromChileandal-
mondsfromCalifornia.Another,askedif
shewentallthewaytoChinatobuyherjas-
minetea,sayswryly:“Ofcoursenot.Im-
portersshipit here.”
Most commodities traded round the
world still travel on merchant vessels.
FromIstanbul’s hills you can seethem
placidlyconvergingonAmbarli,Turkey’s
largestport.Lessvisibleistheliquiditythat
makesthosejourneyspossible.Four-fifths
ofglobaltradetransactions,worth$15trna
year,relyonspecialisedloansorguaran-
tees.Thishiddenworldoftradefinanceis
hugebutpoorly understood.Ithaslong
neededa shake-up,anda nascentrevolu-
tionpromisestounlocktrillionsinfreshcapital.ButtradewarsareputtingthatBig
Banginperil.
Tradefinanceisoneoftheoldestjobsin
banking.Millenniaagomerchantsinpre-
sent-dayTurkeyexchangedclothorcopper
forengravedtabletspromisinga laterpay-
mentinsilver.Tradecredittodaymaybe
moresophisticated,butitstilltacklesthe
sameproblem:thatexporterspreferbeing
paidatthetimeofsale(sotheycanfinance
more production), whereas importers
wouldrathersettleupafterreceivingthe
goods(sotheycanfirstraisethecashbyre-
sellingthem).Eachsiderarelytruststhe
othertokeepitsendofthebargain.
Tradefinanceplacesbanksinthemid-
dle.Typically,theimporter’sbank,once
presented witha shippingbill orother
proof,issuesa “letterofcredit”totheex-
porterguaranteeingpayment.Thisallows
theexportertoobtaincreditfroma bank,
andthentorepaythelenderwhentheulti-
mate customer pays up. The loans are
short-term,usuallylessthanfourmonths.ISTANBUL,LONDONANDNEWYORK
Theworld’soldest,biggestandmostintricatepapertrailisabouttoberippedupTradefinanceTime’sup
A
t the endof September Sabine Lau-
tenschläger, the most senior German
official at the European Central Bank (ecb),
unexpectedly resigned from the bank’s ex-
ecutive board, years before her term was
due to end. She gave no reason for her de-
parture, but is known to have opposed the
bank’s decision, announced last month, to
resume its bond-buying programme until
inflation neared its target of close to, but
below, 2%. If that opposition was why she
stepped down, it would make her the third
German official to quit over bond pur-
chases. In 2011 both Axel Weber, then head
of the Bundesbank, and Jürgen Stark, a
member of the ecb’s executive board, left
over an earlier asset-purchase scheme.
The controversy over the ecb’s latest
round of stimulus, which also cut interest
rates to -0.5%, has heated up. Current and
former central bankers in both Germany
and other northern countries have at-
tacked the decision to resume bond-buy-
ing. Bild, Germany’s biggest-selling tab-
loid, has accused Mario Draghi, the ecb’s
boss, of sucking people’s savings dry. Mr
Draghi’s term ends on October 31st. Chris-
tine Lagarde, the former boss of the imf, re-
places him.
Perhaps signalling a desire to cool
things down, Germany’s government an-
nounced on October 23rd that Isabel Schna-
bel, a member of its council of economic
advisers, would replace Ms Lauten-
schläger. Ms Schnabel, who is also a profes-
sor at the University of Bonn, appears more
pragmatic than those who have thrown in
the towel. She has repeatedly warned poli-
ticians and bankers of the dangers of tell-
ing the public that the ecbis stealing their
savings. In an interview with Handelsblatt,
a German daily, she pointed to Brexit as evi-
dence of the risks of making the European
Union (eu) a scapegoat.
Ms Lagarde will probably be glad to have
a more conciliatory German at the ecb. All
together the central banks of countries ac-
counting for more than half of the euro
zone’s economic output opposed the
bank’s stimulus package. (Few economists,
though, were expecting any change to poli-
cy at its meeting on October 24th, after The
Economistwent to press). Banks hate nega-
tive interest rates because they feel they
cannot pass them on to customers, mean-
ing their net interest margins are
squeezed. Christian Sewing, the boss of
Deutsche Bank, Germany’s biggest lender,
says that Strafzinsen (punitive interest
rates) will eventually destroy the financial
system. Ms Lagarde faces the unenviable
task of winning these critics over.
Some German bank-watchers would
probably have preferred that Jens Weid-
mann, the hawkish boss of the Bundes-
bank, was picked to succeed Mr Draghi. A
few worry that, as a former French finance
minister, Ms Lagarde might further politi-cise matters by pursuing policies that are
redistributive across borders, rather than
sticking to the ecb’s price-stability man-
date. But some hawks hold out hope that
Ms Lagarde might change the bank’s policy.
Some see her promise to review the bank’s
strategy as an opening to rethink its com-
mitment to stimulus. And as she is not a
trained economist, they reckon she might
prove more pliable than Mr Draghi.
In her 78-page-strong responses to
questions from the eu parliament, she
wrote that she wanted to restore trust in the
ecb by communicating more with the pub-
lic, and by listening to the young and civil-
society organisations. A headline in Bild
asked whether life for German savers
might improve after she takes the helm.
Ms Lagarde might do well, though, to re-
member Mr Draghi’s experience with the
German press. When the Italian took
charge eight years ago, Bild pronounced
him a “proper Prussian” and gave him a
spiked Prussian helmet. Only a year later,
after Mr Draghi had allayed fears of a euro-
zone breakup by saying he would do “what-
ever it takes” to preserve the single curren-
cy, Bildasked for its helmet back, com-
manding: “No more German money for
bankrupt states, Herr Draghi.” He has had a
tricky relationship with the euro zone’s
biggest member ever since. 7BERLIN
Germany has mixed feelings about the
bank’s new boss
The European Central Bank
A spiky
relationship
On her Lagarde