IS GLOBAL COMMERCIAL PAPER VIABLE?
Could commercial paper become a global phenomenon? Spurred by the huge expansion of commercial paper in the US, financiers are scrambling to establish market share in European CP, hoping to emulate the American success.
The dramatic expansion of CP in the US during the past three years has pushed outstandings beyond the volume of traditional bank loans; it now accounts for 25% of all corporate debt.
So far in Europe, CP has been largely a vehicle for raising dollars, but the institution of infant domestic markets in a variety of currencies has raised the prospects of issuers eventually arbitraging interest rate and currency movements on a global scale. In the international capital markets, CP has represented the most rapid growth area of the last two years and now it seems set to lend dynamism to the development of Europe's de-regulating domestic market. The great attraction of CP, consisting as it does of short-term unsecured bearer debt, lies in its capacity to match an issuer's funding requirement exactly to an investor's surplus liquidity.
CP has only developed in Europe during the last eighteen months. By common consent, the Euro-commercial paper market came of age this June, when General Motors Acceptance Corp announced a programme of unlimited size.
