Big suppliers viewed them as unreliable given the costs and difficulty of small suppliers executing real-time inventory management. Only large firms with big IT budgets could afford the sunk costs of such systems. Today, a real-time inventory management system can be built using GS1 standards for a few thousand dollars. Small firms can connect to global product webs, through nodes such as Wal-Mart’s central inventory system, in the same way they might connect to a Facebook friend. A common language has levelled the playing field between the corner shop and the supermarket. The transformative powers of a common language have been even more striking in such well-established industries as publishing, music, advertising, news and retailing. For decades, large incumbent firms dominated these markets – EMI, Borders, Tower Records. Yet in less than a decade, new entrants with new business processes have completely reshaped the industrial landscape. Take publishing. Until 2007, publishing was an industry essentially unaltered since Gutenberg. The printing presses, while bigger and faster, would have been recognisable to a fifteenth century printer. 18  Vise and Malseed (2005). 19  McLaren and Shanbhogue (2011), Choi and Varian (2011). 20  Jorgenson et al (2010). BIS central bankers’ speeches  7  Copying and distributing a book to the public involved a complex chain of printers, wholesalers and retailers. This lengthy supply chain added both risk and cost. It also created a significant barrier to entry for new authors who were reliant on publishers to get their physical books onto physical shelves.

Provided this language is flexible enough, like GS1 standards or HTML, it ought to be capable of describing any instrument whatever their underlying complexity. Once developed, maintaining and updating this common language and syntax is likely to need some global governance body to act as guardian. This is akin to the role played by GS1 and W3C for supply chains and web standards. The success of these global standards organisations, without the need for regulatory intervention, sets an encouraging precedent for finance. Using the common language of finance So if a common language for finance were to arise with these features, what benefits might be expected? (a)  Improving risk management in firms  Like retail giants, global financial firms face a hugely complex logistical problem. Like Wal-Mart, they produce multiple products, in multiple locations, with multiple counterparties  30  Financial Stability Board (2012). 31  International Organization for Standardization (2001). 32  International Swaps and Derivatives Association (2012). 10  BIS central bankers’ speeches  working to multiple timelines. The world’s largest banks have hundreds of thousands of assets, tens of thousands of counterparts and operate to timelines ranging between 50 years and 50 milliseconds. Like Wal-Mart, avoiding failure relies on the effective management of risks arising from these vast financial inventories and relationships. The financial crisis exposed myriad weaknesses in those risk management practices, especially among the larger and more complex financial firms. Several reports, from both the official and private sectors, have exposed those deficiencies.33 Many of the lessons are common.