HONG KONG (Reuters) – Hong Kong and Singapore’s de facto central banks unveiled plans on Wednesday to link trade finance platforms they are developing with blockchain technology, to reduce potential fraud and errors in the multi-trillion-dollar funding of international trade.
The Hong Kong Monetary Authority (HKMA) together with banks including HSBC Holdings PLC and Standard Chartered PLC tested late in 2016 the use of distributed ledger technology (DLT), also known as blockchain, to build a trade finance platform. Singapore is also developing a platform.
Linking the two is part of a broader plan between HKMA and the Monetary Authority of Singapore (MAS) to collaborate in blockchain and other financial technology (fintech) projects, the pair said in a joint statement.
“This interface is likely to be the first of its kind in the world in the application of DLT in solving the century-old problem arising from the inefficiency of the paper-based trade finance system,” HKMA head Norman Chan said at a fintech conference.
The move also comes as banks including HSBC and Bank of America Merrill Lynch and government agencies such as the Infocomm Development Authority of Singapore look to use technology to make trade finance more efficient and reduce the risk of fraud in letters of credit (LOC) and other transactions.
Letters of credit are one of the most widely used ways of reducing risk between importers and exporters, helping guarantee more than $ 2 trillion worth of transactions, but the process creates a long paper trail and is time-consuming.
Chan said Hong Kong’s project can digitize trade documents, automate processes, allow sharing of required documentation among authorized participants, and reduce human errors and the risk of fraud.
The HKMA and consortium of banks are now in the process of hiring a developer to create and commercialize their platform, Chan said.
Reporting by Elzio Barreto; Editing by Christopher Cushing