Blockchain in trade finance – slowly getting there
Popular cryptocurrencies like Bitcoin have lost some of their shine; Bitcoin’s value has dropped three quarters since the beginning of the year, but blockchain overall, is still alive and well.
There may be only pockets of the world population using blockchain for applications other than cryptocurrency. For example, maintaining provenance records of items of value like art and luxury goods and academic degree certificates.
But another use case is up and coming.
In June 2018, HSBC Global had successfully completed a commercial trade transaction based on the blockchain technology. The press release for this can be found at http://www.enterpriseitnews.com.my/groundbreaking-hsbc-blockchain-transaction-set-to-revolutionise-trade/
At that time, the media release stated, “This technology is ideally suited for trade because it helps to streamline a previously paper-intensive process which usually takes between 5-10 days to exchange documentations. This exchange was done in 24 hours.”
Basically, blockchain can help streamline trade processes because data in cross border trade transactions is digitised, and shared with relevant parties in a safe environment. All data is stored on a shared unchangeable ledger and a copy of this ledger is kept by each party.
Because of the clinical way transaction data is organised on the blockchain, it actually captures an audit trail as well.
Trade finance since the 1600s – about to drastically change in the next 5 years … or not?
Vivek Ramachandran, Global Head of Innovation and Growth, Commercial Banking at HSBC, had described the June blockchain-based transaction as, “…an inflection point for how trade is conducted.”
The Letter of Credit transaction was end-to-end, completely digital, and enabled a shipment of soybeans to be transported from Argentina to Malaysia via Cargill’s Geneva and Singapore’s subsidiaries.
Opportunities and challenges
Last June’s media release had also stated that according to the United Nations, digitising all of the Asia-Pacific region’s trade-related paperwork could slash the time it takes to export goods by up to 44-percent and in doing so, potentially boost exports by as much as USD257 billion a year.
More recently, a World Trade Organisation (WTO) report, “Can Blockchain revolutionise international trade?”, quoted World Economic Forum (WEF) figures of USD1 trillion in the next decade, in terms of new trade.
Sharma had further commented, that sitting at the epicentre of trade activity, “HSBC is spearheading new technologies like blockchain to make trade more accessible, simpler and faster for our clients.”
But there are several technical challenges to the use of blockchain in trade finance, namely scalability, security, interoperability, and lack of standardisation of information exchanged.
These haven’t been fully addressed by HSBC or ING Bank or any other parties that may have attempted a similar blockchain-powered trade finance feat.
The WTO report also listed lack of conducive regulatory framework and recent data privacy legislations, as further stumbling blocks for blockchain in trade finance.
In Malaysia at least, the regulatory landscape may be slowly changing. The Blockchain transaction last June seems to indicate this.
According to an anonymous source, HSBC in Malaysia are on the verge of launching a new digital product for trade finance, signalling the world’s local bank’s intensifying focus on digital solutions for 2019.
Could this also be due to a friendlier stance on the part of local regulations?
Original Source