HSBC and ING Bank team successfully conducted the world's first live trade-finance transaction using a blockchain for their mutual client, the American food and agricultural giant Cargill, thus demonstrating the commercial and operational viability of the distributed ledger for trade digitization.
The two banks carried out the end-to-end trade transaction on the New York-based start-up R3's scalable blockchain platform called Corda, HSBC said on Monday.
HSBC issued a "Letter of Credit" using Corda to ING, both acting on behalf of Cargill entities.
The blockchain transaction financed a bulk shipment of soybeans from Argentina, through Geneva's trading arm of Cargill, to Malaysia, through Cargill's Singapore subsidiary as the purchaser.
The exchange was done in 24 hours, in contrast to conventional exchanges of paper-based documentation related to letters of credit that usually take between 5 and 10 days. The transaction was completed in two days and used a single shared application rather than multiple systems.
Vivek Ramachandran, HSBC's head of growth and innovation, said, "Trade finance transactions have been made simpler, faster, more transparent and more secure."
"The need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous."
"The quick turnaround could mean unlocking liquidity for businesses," he added.
R3 leads a consortium of over 200 firms, including banks, financial institutions, and technology companies, among others, to develop on the Corda enterprise blockchain ecosystem targeted at businesses.
The United Nations reckons that digitizing all of the Asia-Pacific region's trade-related paperwork could slash the time it takes to export goods by up to 44 percent. Consequently, there will be a cost reduction of up to 31 percent, and exports would be boosted by as much as $257 billion a year.
Adoption of blockchain for trade financing is most relevant to Singapore that handles a huge volume of shipments every year. In 2017, Asia's prominent trade hub handled a total of 626.2 million tonnes in cargo, up 5.5 percent from 2016, while annual vessel arrival tonnage increased by 5.1 percent to reach 2.8 billion gross tonnes.
Enterprise blockchain records information on a shared ledger, with each party holding a copy of the said ledger that updates the appropriate information required by the participant instantaneously. Each party can only view the information that is relevant to them.
Thus, the distributed ledger technology or blockchain is apt for trade as it maintains an unchangeable record of the transaction that includes a description of the goods themselves, the cost, and any legal requirement, on one digital ledger.
The blockchain allows the information required by participants to be shared with them for approval at the appropriate time in each transaction.
by Jyotsna V