Global ‘E-Commerce Joint Initiative’ aims for digitalised customs documents

A groundbreaking global digital trade agreement, aimed at eliminating customs duties on digital content, was finalised on 26 July after five years of negotiations involving 90 countries.

The agreement, known as the E-Commerce Joint Initiative, Is the first of its kind negotiated under the World Trade Organisation (WTO). The Initiative focuses on creating a more efficient and secure global trade environment, aiming to modernise international trade by promoting the digitalisation of customs documents and processes to replace outdated paper-based systems.

The transition is expected to save time and reduce costs for businesses by eliminating the need for physical signatures and the physical exchange of documents. The Organisation for Economic Co-operation and Development (OECD) estimates the value of global digital trade at around £4 trillion (US$5.1 trillion) and growing.

The UK, one of the 90 signatories, hopes that the initiative will provide a significant economic boost. According to the UK government’s analysis, adopting advanced digital trading systems could increase the UK’s gross domestic product (GDP) by up to £24.2 billion, based on 2023 GDP figures. Even partial adoption of these digital systems is projected to provide a considerable uplift to the economy.

The agreement also aims to protect consumers from online fraud and misleading product claims. By establishing a common set of rules, it helps create a safer environment for digital transactions.

For businesses, particularly those in financial services, the adoption of e-documents and e-signatures will simplify international transactions, reducing reliance on paper contracts and manual processes.

UK Business and Trade Secretary Jonathan Reynolds highlighted the importance of this agreement for the UK’s economic growth. He said, “We are proud to play our part in securing the first-ever global digital trade agreement, cutting costs for business and delivering on this government’s ambition to deliver economic growth.”

Science Secretary Peter Kyle said, “This global agreement aims to help people use technology safely by protecting them from fraud, while driving economic growth through the digitalisation of trade so it’s faster and more secure.”

Chris Southworth, Secretary General of the International Chamber of Commerce (ICC) United Kingdom said, “It creates the environment we need to drive innovation as we transition away from archaic paper-based processes and into the modern world of data and technology.”

The next phase involves working with WTO partners to integrate the E-Commerce Joint Initiative into the WTO legal framework, followed by signatories’ ratification of the agreement.

 

Three central bank rate decisions due

A trio of interest rate decisions from the Bank of Japan (BoJ), the US Federal Reserve and the Bank of England (BoE) are keenly awaited by the markets over the next couple of days.

The BoJ, which begins its two-day meeting today has attracted headlines ranging from speculation about rate hikes, constant hints about bond tapering or suspicions of intervention in foreign exchange markets, Governor Kazuo Ueda has been making his mark since taking over.

Today’s gathering looks set to give the bank more prime airtime as policymakers have already flagged that a decision will be made at this meeting on how much to reduce bond purchases by. Reuters has reported that the current monthly purchases of six trillion yen (JPY) could be halved in the coming years based on what sources have said.

There is less clarity about the likelihood of a rate hike as policymakers do not appear to have yet decided on the precise timing of one even though most agree that further increases will be necessary this year. Investors on their part have upped their bets of a July move and a 10-basis-point (bps) hike is now about two-thirds priced in.

The sluggish economy and concerns about weak consumer demand could justify the need for caution, particularly when inflation, whilst above target, is far from being rampant. Moreover, the yen’s impressive rebound in July has potentially provided policymakers some breathing space on the urgency of rate hikes.

However, even if there are no major surprises on Wednesday and the only announcement is the expected decision on scaling back bond purchases, it’s unlikely that policymakers would risk sounding dovish as this could derail the yen’s recovery. The bank’s latest outlook report may offer some additional clues on the future policy course in such a scenario. Nevertheless, given the scale of the yen’s rally, a hawkish hold could still trigger some profit taking in yen crosses.

The  Federal Reserrve will announce its decision a few hours after the BoJ on Wednesday. Out of the three central banks, the Fed is the least likely to announce any policy change. If there was a remote possibility of a surprise cut, those odds were slashed even more after the stronger-than-expected US GDP reading for the second quarter.

The Fed is not likely to cut rates until September as the economy remains strong. The US economy is displaying only mild signs of a slowdown and the same is true for the labour market. This backdrop has made it difficult for Fed officials to say with certainty that inflation is on a sustained path towards 2%. However, their most recent remarks indicate growing confidence that the target is within reach and the policy statement will likely be tweaked to reflect this, signalling a dovish tilt.

The Bank of England will round up the week’s central bank decisions and even though the UK election uncertainty has been removed, it’s unclear what the outcome will be on Thursday as a tight vote looms. After a few setbacks, inflation in the UK has fallen sharply this year, hitting the bank’s 2% target in the past two months. But BoE policymakers remain concerned about the still high services inflation and the very slow decline in wage growth.

The latest commentary suggests there is no unanimity within the MPC on whether or not to cut rates in August and market opinion is split 50-50 too. But there have been subtle hints from policymakers that rates don’t need to stay as high as the current 5.25% to maintain restrictive policy so the odds are tilted somewhat towards a 25-bps reduction.

What may ultimately sway MPC members’ minds is the bank’s updated quarterly projections. If they decide to start easing, it will likely be a close call and be communicated as a hawkish cut amid the persisting upside risks to inflation. So, despite a cut not being fully priced in, the pound may not necessarily slide much on the news.

Russian central bank hikes rates to 18%

Russia's central bank has raised its key interest rate by 200 basis points (bps) to 18%, the highest level in more than two years, and pledged to continue tightening until inflation rates moderate.

The Bank of Russia also raised its inflation forecast for 2024 to 6.5–7.0%, well above its 4% target, expects it to ease to 4.0–4.5% in 2025.

The hike was expected by the market although some dissenting voices in the Russian elite favoured a more dovish approach, criticising the bank for stifling economic growth. The key rate is now at its highest since April 2022, when rates jumped to 20% in an emergency move shortly after Russian troops invaded Ukraine.

“For inflation to begin decreasing again, monetary policy needs to be tightened further,” the bank stated.

“Returning inflation to the target requires considerably tighter monetary conditions than presumed earlier. The Bank of Russia will consider the necessity of further key rate increase at its upcoming meetings.” The next meeting is scheduled for 13 September.

Annual inflation, its main concern, rose to 9.0% this month from 8.6% in June, it added. Inflation stood at 7.4% in 2023, against 11.9% in 2022.

Central bank governor Elvira Nabiullina said Russia’s economy remained “substantially overheated”, revealing a broad consensus among board members over the rate decision, with some wanting a more significant hike.

Nabiullina dismissed an earlier suggestion from Igor Sechin, CEO of oil giant Rosneft, to follow the lead of the People’s Bank of China (PBOC), which recently embarked on an easing cycle this week. She emphasised that economic conditions in Russia and China were different.

“Currently, China is balancing around zero inflation, they are pursuing a policy diametrically opposed to ours because our task is to reduce inflation, while their task is to avoid deflation,” she said.

Nabiullina expects monthly inflation rates to begin moderating but said it would take longer to achieve a sustainable decline in price growth, noting that the central bank underestimated the impact of budget spending on inflation in the first half of the year.

The central bank noted an “upward deviation of the Russian economy from a balanced growth path” and cited labour shortages and the continued expansion of retail and corporate lending as key factors behind high inflation.

The bank raised its forecast for GDP growth in 2024 to 3.5%-4.0% from 2.5%-3.5%. President Vladimir Putin has estimated that the Russian economy grew by over 5% in the first half of 2024.

The Bank of Russia raised rates by 850 bps in H2 2023, including an unscheduled emergency hike in August as the rouble fell below 100 to the dollar and the Kremlin called for tighter monetary policy.

 

Porsche’s output dented by aluminium supply shortage

Sports car manufacturer Porsche has revealed that its supply chain has been hit by a shortage of aluminium alloys as the result of flooding at an unnamed European supplier. Heavy rains in France, Switzerland and Italy a month ago caused flooding and fatal landslides as well as disrupting manufacturing. Porsche said the supplier had notified customers of the occurrence of a force majeure event.

The German carmaker said the significant shortage of supply caused by the flooding had hit various of its tier one parts suppliers and it had been working with them to find alternative sources.

“However, as the European capacities for aluminium are exhausted and alternative suppliers can only offer very limited material, this is a major challenge,” said a spokesperson for Porsche, adding that its tier suppliers were looking beyond Europe and that technical approvals for alternative suppliers would take time.

The parts affected are lightweight body components made of aluminium which are used across Porsche’s model range. Porsche said the shaping of the distinctive outer skin, which is typical of Porsche design, requires aluminium with very special alloys and that meant depending on highly competent partners.

“Despite immediate countermeasures, it is becoming apparent that the impending supply shortage will lead to impairments in production that will not be fully compensated for over the course of the year,” said the company in a statement.

Porsche added that long process lead times had to be taken into account for aluminium. “This means that if alternative material is ordered now, it can only be delivered after eight to twelve weeks,” said the spokesperson. “We are striving to secure the implementation of alternative delivery scenarios for all vehicles.”

In response Porsche has lowered its return-on-sales forecast to between 14% and 15% and revised its sales revenue to €39 billion to €40 billion, from €40 billion to €42 billion previously. It also said that its share of battery EV would now be between 12% and 13% from 13% to 15% before. Porsche shares dropped 4% last week.

Porsche posted a positive second quarter up on Q1 in terms of sales revenue, operating profit and group operating return on sales, which was 17% in Q2. In the first half of 2024 it made €3.1 billion in group operating profit, with a 15.7% group operating return on sales.

The carmaker reported high demand for its 911 Carrera GTS T-Hybrid and said that along with the new all-electric Macan it has enhanced its product portfolio for the long term.

 

Slovenia is first EU nation to issue sovereign digital bond

Slovenia has become the first European Union (EU) member to issue a sovereign digital bond with a €30 million (US$32.5 million) note that settled on-chain through the Bank of France's tokenised cash system as part of the European Central Bank’s (ECB) money settlement experimentation programme.

The four-month notes mature 25 November and carry a coupon of 3.65%. Settlement took place in wholesale central bank digital currency (CBDC) last Thursday, the Slovenian goverrnment said, A wholesale CBDC is a digital token designed for use by financial institutions rather than consumers.

The ECB completed its first test of the settlement of a wholesale CBDC in May and said it would conduct more trials and experiments over the following months. The first experiment, carried out by Austria's central bank, looked at the tokenization and simulated delivery-versus-payment settlement of government bonds in a secondary market transaction against central bank money, the ECB said at the time.

“These initial transactions and experiments with wholesale tokenized central bank money represent an important steppingstone to greater transparency and efficiency of financial markets with wider technology adoption,” the Slovenian government said. “While hardly material in financial markets at the moment in terms of value issued and/or traded, we expect the importance of the distributed ledger technology to grow significantly in the following years.”

BNP Paribas acted as global coordinator and sole bookrunner, as well as the distrributed ledger technology (DLT) platform operator of Neobonds, its private tokenisation platform built with Digital Asset's Daml and leveraging Canton blockchain.

Ethiopia floats currency as prelude to IMF deal

Ethiopia, east Africa’s largest economy, will float its currency in a long-delayed reform designed to ease chronic foreign currency shortages and attract foreign investment, a move that is expected to be a prelude to a multilateral funding deal.

The country’s central bank removed restrictions on the foreign currency market as part of efforts by Prime Minister Abiy Ahmed’s government to secure more than US$10 billion in funding from the International Monetary Fund (IMF) and World Bank and to restructure debt after defaulting in December.

“The reform introduces a competitive, market-based determination of the exchange rate and addresses a long-standing distortion within the Ethiopian economy,” the central bank said in a statement. This included a “shift to a market-based exchange regime”.

Ethiopia has a managed floating exchange rate system that has caused a severe shortage of dollars critical for imports and the repatriation of profits by foreign investors.

Commercial Bank of Ethiopia, the country’s largest lender, quoted the birr (ETB) at about 75 to the US dollar on Monday, indicating a devaluation of about 30% from Friday’s official rate of about ETB 57

Professor Alemayehu Geda, an economist at Addis Ababa University, feared that with inflation running at 20%, a weaker currency would accelerate inflation by raising the cost of imported goods. When Nigeria sharply devalued its currency last year it stoked inflation to 30-year highs.

But Charlie Robertson, head of macro policy at FIM Partners, a frontier and emerging market investment house, said the devaluation might not create an inflation surge because Ethiopia had been effectively operating for years at the parallel exchange rate of ETB110-120 to the US dollar. The float might also be staggered and fuel prices subsidised during the transition, he said.

 

German banks and corporates share tokenised deposit trial results

The German Banking Industry Committee (GBIC) has published the results of a proof of concept (PoC) for the Commercial Bank Money Token (CBMT) project. It ran the trials in association with the Federation of German Industries (BDI)..

While many tokenised deposit projects target financial or interbank applications, CBMT is focused on serving large corporates, especially industrial companies. Five banks (DZ Bank, Deutsche Bank, Commerzbank, Unicredit and Helaba) i participated n the PoC alongside five enterprises (Airplus, BASF, Evonik, Mercedes Benz and Siemens).

The CBMT concept allows clients from various banks to conduct transactions using digital currency, much like traditional bank payments. The tokens are created on multiple third-party distributed ledger technology (DLT) networks, such as a consortium blockchain, targeting corporate customers.

When an enterprise receives a CBMT token from a bank where it doesn’t hold an account, the token will be converted into one from its own bank. Essentially, the banks exchange these tokens. There is an additional step not seen by clients in which the banks settle between themselves in the conventional way.

Key features would be the ability for corporates to hold tokens from multiple banks and to make P2P (B2B) transactions 24/7/365. Given this is bank money requiring compliance, recipients have to be whitelisted. As with other digital payments, there’s atomic settlement ensuring both sides of a transaction either happen or fail. CBMT also aims to support tiny transactions of a fraction of a cent up to very large ones worth millions or mor

The trials involved a variety of use cases, from basic money transfers to streaming and multi-currency payments.

Since the CBMT tokens will be used on different enterprise DLT networks, it is necessary to be technologically agnostic. Hence, the PoC trial used three different networks:

• a private permissioned network using R3’s Corda
• NEXI using Hyperledger Besu on the private permissioned SiaChain
• the European Public Network, an Ethereum compatible public permissioned network.

At this stage the tests were standalone simulations without integration with bank or corporate systems, but that’s something the group plans to explore in the next phase.

Malta grants EMI licence to UK embedded finance provider Weavr

Malta’s financial regulator has awarded an Electronic Money Institution (EMI) licence to Weavr, a UK-based Banking-as-a-Service (BaaS) solutions provider, which says it is now set to deliver “the most comprehensive domiciled IBAN (international bank account number) offering in Europe”.

The Maltese Financial Services Authority (MFSA) granted the licence following an “extensive review” of Weavr’s operating model, which the vendor claims is “embeddable by design”.

Future development of Weavr’s IBAN offering will seek to support B2B Software-as-a-Service (SaaS) businesses with “a range of financial products that span cards, account and fund transfer networks globally”.

Weavr says it will utilise its partnership with Visa, established in June 2023, to deliver “several of these financial products”.

Weavr CEO Alex Mifsud, who co-founded the embedded finance provider in 2018, says the licence will enable B2B SaaS businesses to adopt embedded finance with “unprecedented ease” in the pursuit of delivering “transformative software experiences for various business-critical jobs”, including accounting, billing, project management and HR management.

“In this new era when regulators across Europe are increasingly addressing the risks associated with BaaS, we are honoured to be among the first organisations awarded a financial licence specifically to operate a safer model for embedded finance,” he adds

 

SME lender Triver teams up with Elcom to launch instant payment service

UK-based small businesses supplying the public sector will be able to get paid immediately, following the launch of a new instant invoice payment service by SME working capital provider Triver and procurement platform Elcom.

Triver says that it uses a combination of Open Banking data and sophisticated AI to fund the short-term working capital needs of small businesses, providing advances on a business’ client invoices.

From initial application to account opening, it takes 20 minutes for funds to appear in a business’ bank account, compared to the up to four weeks it can take for a bank to open a facility and 24 hours to advance an invoice.

Triver is working in partnership with software company Elcom, based in the UK, which specialises in procurement services for the public sector and annually processes £15 billion (US$19.2 billion) of supplier invoices for government departments, agencies, and public bodies, including the National Health Service (NHS).

Together, the companies’ new facility will enable SME suppliers to the public sector to get paid straight away, thereby improving cash flow.

The launch comes ahead of the UK’s implementation of the Procurement Act this October, the aim of which is to help SMEs win some of the approximately £300 billion of public sector expenditure per year.

 

Standard Bank provides Motus with multi-currency facility

South Africa’s Standard Bank has completed the refinancing and upsizing of a multi-currency facility for Motus to the value of £150 million (US$19. million). Motus is a multi-national provider of automotive mobility solutions and vehicle products and services, with a leading market presence in South Africa as well as a selected international offering in the UK, Australia, Asia and Southern and East Africa.

The bank acted in its capacity as joint initial mandated lead arranger, Bookrunner and Sustainability Co-ordinator to play a leading role in the international syndication to refinance and upsize Motus’ existing multi-currency syndicated loan facility.

The facility incorporates all material aspects of the Loan Market Association’s (LMA)Sustainability Linked Loan Principles to allow the facility to be classified as a sustainability-linked facility once Sustainability Performance Targets are finalised by November 2024, further aligning to Motus’ environmental, social and governance (ESG) commitments.

“This latest transaction is a testament to Standard Bank’s capability in international lending syndications to raise hard currency loan funding for our clients to support them in their growth ambitions within and beyond the African continent” said Chanel Boxshall-Smith, Loan Syndication and Distribution, Investment Banking, Standard Bank.