HSBC Completes the World's First Blockchain Trade Finance Transaction

The use of blockchain by banks like HSBC will reduce the risk of fraud in banking. Kin Cheung  AP

HSBC used a blockchain platform overseen by the consortium R3 to issue a letter of credit to ING to help Cargill complete the transaction.

The transaction demonstrates that Blockchain is a commercially and operationally viable solution for trade digitization, the banks added.

"The reason why letters of credit have persisted is because of two real challenges - the absence of digital infrastructure and the challenge of coordinating multiple parties", Vivek Ramachandran, global head of innovation and growth at HSBC's commercial banking unit told Reuters. The blockchain-based transaction was completed in 24 hours, Bloomberg says.

According to HSBC 's statement, HSBC and Dutch bank ING successfully transferred funds to Cargill, the food and agriculture group.

HSBC and ING said the technology is "perfect" for trade because it keeps an unchangeable log of the transaction and details of the products being bought or sold.

Blockchain is the digital technology which underpins cryptocurrencies like Bitcoin.

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This Cargill transaction breakthrough provides a ray of hope for trade finance and if more efforts are put into consolidating on the achievement made so far, there is the possibility that trade finance could shift from the traditional method to a blockchain technology-driven one in no distant time. The trial used R3's Corda blockchain platform to finance a shipment of soya from Argentina to Malaysia.

By putting all Asia Pacific's trade-related paperwork onto a distributed ledgers, it could cut the time it takes to export the goods by 44 percent, which in turn could cut costs by 31 percent. "The quick turnaround could mean unlocking liquidity for businesses".

Trade experts believe blockchain may be shipping's answer to how it can reduce the time it spends on paper-based processes.

Last Year, HSBC was awarded "World's Best Bank" and "North America's Best Bank for Transaction Services" among a list of many others, at the 2017 Euromoney Awards. The bank then reported that the success of this live transaction builds a firm foundation for the future of trade finance, especially for Singapore.

According to HSBC, the transaction can be replicated. Corda is supported by 12 banks and this will hopefully allow it to bring the technology to market quickly and on a global scale.

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