The project aims at harnessing the benefits of Distributed Ledger Technology (DLT), also known as blockchain, to better tap into the synergies of $2 trillion worth of transactions between the two nations.
On Wednesday, the central banks of Hong Kong and Singapore unveiled plans to link trade and finance platforms with blockchain technology that they are developing, in a move that aims to reduce potential frauds and errors in the multi-trillion-dollar international trade.
This announcement comes in the wake of the Hong Kong Monetary Authority (HKMA) along with HSBC Holdings PLC and Standard Chartered PLC testing the usage of distributed ledger technology (DLT) also known as blockchain, in late 2016.
“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,” said Norman Chan, HKMA’s head at a fintech conference.
The development comes at a time when financial institutions, including banks such as Bank of America Merrill Lynch and HSBC are collaborating with government agencies, including Infocomm Development Authority of Singapore, to use technology cutting edge technologies to make trade and finance more efficient and secure while at the same time reduce risks related to fraud in letters of credit (LOC) and other transactions.
While letters of credit are prominently and widely used by importers and exporters to reduce their risks, and have helped guarantee more than $2 trillion worth of transactions, the process however is long, tedious, creates a huge paper trail and is extremely time-consuming.
This new tool will help alleviate these concerns.