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State of the nation – the future looks bright
| 06-04-2018 | treasuryXL |
Debt
At the end of Q4 2017, government debt was reported as EUR 416 bn. This is 56.7% of GDP, compared to 61.8% in 2016. There was a reduction of EUR 18 bn in the total debt – the largest annual fall recorded. As recently as 2014, this ratio stood at 68.0%
Budget surplus
At the end of Q4 2017, the government had a budget surplus of EUR 8 bn – a surplus of 1.1% of GDP. In 2009, this was a deficit of 5.4% of GDP. Expenditure increased by EUR 7 bn in 2017, but this was offset by an increase in revenue of EUR 12 bn. Tax revenues increased by EUR 15 bn. There was additional income of EUR 8 bn from the sale of state shareholdings in ASR and ABNAmro among others.
Inflation
There was a rise in consumer prices – CPI showed an annual rise of 1.4% in 2017. This compares with a rise of 0.3% in 2016.
Labour
Wages in 2017 increased by 1.7% and unemployment fell in 2017 – at the end of 2017 the rate was 4.1%. Shortages of available labour are being observed in the market – employers have stated that they are finding it increasingly hard to find appropriate employees. The latest reports suggest that there are 1 million vacancies, but that employers are having difficulty finding qualified people. Most of this growth appears to be coming from the small and medium sized enterprises (MKB) – large organisations are still in a round of cost-cutting and down-sizing.
The report of the Netherlands looks very rosy, but international events could impact on the health of the economy. There are threats of trade wars; Brexit will impact on trade within 1 year; the EU parliament is asking for more money in the next budget cycle; the composition of the new Italian government could cause unrest within the rest of the EU.
The future does look bright, but caution is advised on the road ahead.
What future role for CSDs in blockchain post-trade environment?
| 05-04-2018 | Carlo de Meijer |
Where do CSDs stand now?
Complex and fragmented post-trade infrastructure
The current post-trade infrastructure is highly complex and fragmented, crowded with intermediaries, and dealing with outdated legacy systems and technologies. Much of the complexity and fragmentation of the post-trade world is the result of the various participants (custodians, issuers, registrars, CSDs) holding their own, separate ledgers in order to carry out the processes. Consequently, they spend much time and resources on reconciliation and risk management, in order to ensure that transactions can be (and are) appropriately carried out. The completion of securities transactions is as a result a costly and risky business. This has important consequences, efficiency-wise.
Situated at the end of the post-trading process, CSDs are systemically important intermediaries. In the post-trade process the CSDs play a special role both as a depository, involving the legal safekeeping and maintenance of securities in a ‘central depository’ on behalf of custodians, in materialised or dematerialised form; and for the, involving the issuance of further securities by issuers, and their onboarding onto CSDs’ platforms.
Is there a future for CSDs in a disruptive blockchain world?
Blockchain: disruption in securities post-trade
DLT has the potential to heavily disrupt existing post-trade processes in financial services, impacting the business model of a number of intermediaries. This raises significant questions for the present actors in the post-trade world as their role may change dramatically or even disappear. For some actors in the post-trade world, DLT could completely replace their businesses or even make them obsolete. And others should question what will be their added-value within future DLT services.
With blockchain, that is linking trading partners directly, everything will be in place in the ledger at the time of the transaction. Institutions will no longer have to maintain their own databases in the future with DLT, as there will be only one database for all participants in the transaction.
With DLT, all of the complex systems and processes to transfer cash and equities from one account to another are not required. Everything can be embedded into the blockchain. Buyers and sellers can match transactions in seconds and all parties are aware a transaction has been done. This will heavily ease the reconciliation process. Blockchain could ultimately become the standard for financial transactions and real-time settlements, increasing transparency and efficiency in a highly fragmented industry.
Read the full article of our expert Carlo de Meijer on LinkedIn
Carlo de Meijer
Economist and researcher
Financing your international trade – documentary collections
| 04-04-2018 | Lionel Pavey |
Acquiring the right goods at the right price can eventually lead a company to overseas markets. International trade has certain barriers – buyers and sellers have never met and are reluctant to completely trust each other; drawing up documentation can be difficult and time consuming due to difference in law between 2 countries; agreement has to be made on the settlement currency; documentation that implies ownership needs to be sent, but the seller is hesitant to have these released to the buyer before payment has been made. This article looks at 1 of the 3 main financial instruments used in international trade – the documentary collection (DC).
What is the process?
1 – Buyer and seller agree terms and conditions for a trade to take place – the means of payment, the collecting bank (this is usually the house bank of the buyer), a detailed description of the set of documents that have to supplied.
2 – The seller (exporter) arranges for shipment of the goods to the buyer (importer) via a shipping agent and receives a transport document (usually a bill of lading) that is negotiable.
3 – The seller prepares the agreed documents into 1 package and presents these to his bank (the remitting bank). This will include the bill of lading, certificates of origin, inspection notices, a collection order stating the terms and conditions under which the bank can release the documents etc. and a draft.
4 – The remitting bank will send these documents to the collecting bank instructing the collecting bank to present the documents to the buyer and to collect the payment.
5 – The collecting bank will inspect the documents and the contract, ensuring that they are in compliance with the collection order.
6 – The collecting bank will contact the buyer stating that the documents are in order, or what discrepancies have been established; and inform the buyer about the terms and conditions of the collection order.
7 – The buyer will be shown the documents and asked to accept them. Acceptance is recognised by signing the draft. When the documents are accepted, and payment is made then the documents are handed over to the buyer.
8 – Release of the documents occurs in 2 ways – documents against payment is when payment is made at sight of the documents; and documents against acceptance is when payment is made at an agreed date in the future.
9 – The buyer takes possession of the documents allowing them to receive the goods from the warehouse or port where they are being stored.
10 – The collecting bank arranges to pay the remitting bank either immediately in the event of a sight bill, or at the agreed future date in the event of an acceptance bill.
11 – The remitting bank arranges to credit the account of the seller.
So it is a letter of credit?
No, a documentary collection is an alternative to a letter of credit. In a DC, the banks undertake no guarantee role – they merely advise, release documents and effect payments. If a buyer does not agree to the documents, they do not receive the goods, the banks do not effect payment and the seller is out of pocket. Therefore a DC is normally far cheaper than a LC.
Why use a DC?
Both buyer and seller know each other and are happy with their existing relationship.
The collections are for a one-off transaction – there is no open account between the parties.
The seller has faith in the economic and political characteristics of the importing country.
A LC is not acceptable to both parties.
Documentary collections are governed by the Uniform Rules for Collections as issued by the International Chamber of Commerce.
Lionel Pavey
Cash Management and Treasury Specialist