A recent report from the United Nations Trade and Development agency (UNCTAD) underscores something few practitioners like to acknowledge: the global financial system, including trade finance, is not immune to macro-economic, regulatory and structural stress.

UNCTAD argues that financial market volatility, currency swings, capital flow disruption, and climate-driven economic stress now influence trade as much as traditional supply chain, logistics or demand-side factors.

For many emerging economies and developing nations, these changes pose a particular threat, increased borrowing costs, hard-to-predict capital flows, and reduced access to dollar-denominated financing.

What does this mean for trade finance? At a minimum, it signals a growing need for resilience, flexibility and diversification.

Traditional models, based heavily on dollar-denominated documentary credits or bank provided short-term liquidity, may no longer be enough. Instead, forward looking adaptation is required: local currency trade, alternative financing instruments, and greater use of supply chain finance and receivables structures.

The market is already seeing early signs of this trend. For example, some regional trade blocs are discussing bilateral settlement in local currencies, especially for sectors like textiles, chemicals and metals. A move that could reduce reliance on the US dollar and mitigate currency conversion risk.

At the same time, banks and trade finance providers must re-think risk, compliance and capital allocation models. As global liquidity becomes more volatile, credit lines must become more dynamic, and due diligence more forward looking.

Political risk, currency risk, climate risk and supply chain risk are becoming increasingly intertwined, and cannot be compartmentalised into simple "trade vs finance" silos.

Accordingly, practitioners need to prepare:

Diversify funding sources: explore receivables and payables finance, supply chain finance, local currency settlement and hybrid structures to reduce dependence on single currency exposures.

Enhance risk management frameworks: incorporate currency volatility, climate stress, and geopolitical risk into underwriting models.

Push for modernisation and regulatory reform; encourage the adoption of digital documentation, shorter payment cycle instruments, and legal frameworks that recognise electronic trade records.

Promote regional trade corridors: emerging economy clusters may benefit greatly from regional trade finance systems suited to local currencies and regulatory regimes, bypassing dollar-dependence.

Summarising, the changing macro environment is reshaping the trade finance landscape. The path forward will require agility, innovation, and coordination across industry, regulators and governments. Market participants who adapt will survive, those who do not may struggle as volatility becomes a structural feature of global trade.

Further information: https://www.reuters.com/business/finance/global-financial-system-must-adapt-better-serve-economy-un-trade-agency-says-2025-12-02/

This article represents the views of the author and not necessarily those of the ICC.