Blockchain Trends in Trade Finance and International Trade – Various Trials by Renowned Banks

The trade finance business, has been stereotypically low risk but high collateral in nature, but was not excused from the 2008 GFC (Global Financial Crisis). Regardless of LCs, Collections or open account methods of methods, the issues of securing and enforcing credible commitments across borders makes trade finance more vulnerable during FX turmoil.

We reported in the past that the Hong Kong monetary authority had collaborated with some banking consortium to deploy newly invented blockchain technology. While the global banking giant HSBC has already clarified back in May as to how the world’s first commercially viable blockchain trade finance transaction on the Corda platform was successfully executed, that was developed by the R3 blockchain consortium. Other banking players, such as, Deutsche Bank and Rabobank have also teamed up to launch a trade finance platform.

While CGI, a Canadian-based global IT consulting and outsourcing firm, confirms the collaboration with National Bank of Canada and the blockchain firm Skuchain to trial distributed ledger technology (DLT) in a project revolving around negotiation standby letters of credit and guarantees.

The standby letter of credit is nothing but a guarantee of payment issued by a bank on behalf of a client. Wherein, the issuing bank has to fulfil the payment obligations just in the case when the client defaults. By the smart use of smart contracts, client is enabled to negotiate the L/Cs.

Patrice Roy, VP of National Bank of Canada’s Payments, Cash Management and International Solutions, commented that “this pilot project is a great opportunity to leverage blockchain technology to simplify the process for negotiating standby letters of credit and guarantees while making it more transparent and secure. This will enable us to offer a simple, fast and efficient experience to our commercial clients which facilitates managing their business.”

Frank Tezzi, CGI’s VP of Trade and Supply Chain Solutions, stated: “The use of blockchain offers a shared ledger that serves as the single source of truth during pre-issuance negotiation and through issuance and re-issuance processes.”

“This example provides certainty and transparency for beneficiaries regarding the guarantee process as they enter into a financial transaction,”he explained.

As per the press releasefrom Samsung SDS, which is the logistics and IT unit of the South Korean tech giant Samsung, has collaborated with ABN AMRO, to test a blockchain-based shipping solution between Asia and Europe.

The trial is scheduled in January, and intends to expedite the logistics operations and to reduce operational costs by automatically generating smart contracts. This project aims for the container shipment by improving efficiency in the payments, administration, and physical transportation.

Having mentioned that, the trade finance business is getting revitalized by the robust blockchain technology, though many projects are still under experimentation stage, quite a few are under pilot phase.

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