GLOBAL FINANCE

Currenex.com, are offering new forex services to companies, such as
the ability to trade on their own. There are even schemes to offer retail
customers forex trading, such as OANDA.com.

Banks are under threat from these new competitors. The challenge

for them is to find innovative ways to keep the business for themselves.
One promising strategy is the cross-bank R&D alliances that are forming
to develop cutting-edge technology for e-banking services. By sharing
a ``killer app'' across the whole industry, banks might be able to fend
off outsiders in the long term.

KEY LEARNING POINTS

» The Internet ``disintermediates'' (cuts out middle men) and

drives down prices because of ``price transparency'' (you can
compare prices more easily) and efficiency gains.

» The physical cost of communications is dropping massively.

Large companies are enjoying major savings by putting their
supply chains online. Ultimately this could lead to a devolution of
companies into loose networks of small, independently owned
units.

» ``Knowledge,'' in the sense of technological advances, is gener-

ally recognized to have been the main engine for growth in
developed countries during the twentieth century. The US,
Japan, and Europe are all roughly at the same level of techno-
logical development the US may be ahead in microprocessors,
for instance, but Europe is ahead in mobile telephony.

» A period of strong US growth in the 1990s fuelled by knowledge-

based industries gave rise to claims that there was a ``New
Economy'' or a ``New Economic Paradigm'' of accelerating
productivity growth without more inflation. Some argued that
the productivity of the new businesses were being underes-
timated in official growth figures and that this was evidence
that the limit to US growth without unacceptable inflation had
changed. This argument is questioned by traditionalists who say
that standard productivity measures have always underestimated
productivity because no one has found a way to measure the
total effects of innovations (the car, antibiotics, etc.) we do