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.
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