International Trade Finance from the Origins to the Present: Market Structures, Regulation and Governance

TL;DR

This chapter traces the historical evolution of international trade finance from the Middle Ages to the present, highlighting changes in market structure, regulation, governance, and the development of trade credit instruments over time.

Contribution

It provides a comprehensive historical overview of the development and transformation of global trade finance markets and instruments from medieval times to today.

Findings

Market centralization occurred in the 19th century with London as a global hub.

Trade credit instruments evolved from local assets to standardized international instruments.

The current decentralized market structure emerged post-1970.

Abstract

This chapter presents a history of international trade finance - the oldest domain of international finance - from its emergence in the Middle Ages up to today. We describe how the structure and governance of the global trade finance market changed over time and how trade credit instruments evolved. Trade finance products initially consisted of idiosyncratic assets issued by local merchants and bankers. The financing of international trade then became increasingly centralized and credit instruments were standardized through the diffusion of the local standards of consecutive leading trading centres (Antwerp, Amsterdam, London). This process of market centralization/product standardization culminated in the nineteenth century when London became the global centre for international trade finance and the sterling bill of exchange emerged as the most widely used trade finance instrument. The structure of the trade finance market then evolved considerably following the First World War and disintegrated during the interwar de-globalization and Bretton Woods period. The reconstruction of global trade finance in the post-1970 period gave way to the decentralized market structure that prevails nowadays.