HSBC Holdings successfully used blockchain in performing a trade finance transaction. The company believes that its success in performing the transaction is a positive sign that blockchain could possibly be used for financing trade. The technology is expected to minimize paperwork, cut costs, and speed up transaction times.
According to a report on Bloomberg, HSBC Holdings Plc has successfully carried out a trade finance transaction with the use of the blockchain technology indicating that the doubt over the use of the technology for trade finance should be laid to rest.
Before now, there have been doubts as to the possibility of using the technology for trade finance. However, HSBC Holdings was able to work in conjunction with ING Bank NV to handle a letter of credit for Cargill Inc. which depended on blockchain technology (Corda) created by the R3 consortium. Last week, a shipment of soy bean from Argentina to Malaysia was supported by a letter of credit.
The transaction was the first scalable live trade finance carried out via the blockchain technology, which was an end-to-end trade involving a buyer and a seller and their supportive banks, performed on a shared digital application instead of using several systems.
Vivek Ramachandran, HSBC’s global head of innovation and growth for commercial banking, said that “this is an inflection point for how trade is conducted”. Speaking further, he said that “With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous”.
Blockchain Technology to Cut Down Transaction Times
According to Vivek, the process of trade finance can be streamlined to within 24 hours from the traditional 5 to 10 days that it has taken as a result of exchange of documents involved in the paper-intensive process.
This Cargill transaction breakthrough provides a ray of hope for trade finance and if more efforts are put into consolidating this progress, there is the possibility that trade finance could shift from the traditional method to a blockchain technology-driven one in the near future.
Blockchain Is the Future of Trade Finance
Bearing in mind that the Cargill transaction took just 24 hours to accomplish, it would make no sense really for businesses to keep depending on a traditional system that consumes time excessively. With this milestone achievement, blockchain has scored a plus point in trade finance and could now be the future of the trade which businessmen rely on for peace of mind.
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What do you think about the use of bockchain technology in handling trade finance? Do you believe it is feasible to depend on it for the future?