Blockchain for the Global Finance Trade Gap
The number is stunning: $1.5 trillion.
That’s the size of the global finance trade gap, according to a report by the International Chamber of Commerce. That deficit, representing roughly 10% of global merchandise trade volumes, means that businesses all over the world, large and small, continue to lack access to the credit they need to grow, create jobs and succeed.
Even worse: The gap is estimated to grow to $2.4 trillion by 2025.
While technology has already digitized some important areas of trade, the systems that handle mission-critical activities such as settlement, liquidity management, and foreign exchange (FX) remain highly outdated, inflexible and disjointed. The result is a complex gridlock that limits visibility for all parties and hinders access to liquidity for those who need it most.
This week, Bitfury proudly launched a partnership with Mphasis, an Information Technology (IT) solutions provider specializing in cloud and cognitive services, to develop a blockchain solution that will bring new levels of automation, transparency and efficiency to the financial services infrastructure that underpins global trade.
Most experts agree that blockchain holds unique potential to address this issue. According to a 2018 report by the World Economic Forum (WEF) and Bain & Company, blockchain technology is well positioned to eliminate inefficiencies in trade and supply chains through:
· Faster credit risk assessment from the transaction history
· Minimized human error in document checks
· Instant verification and reconciliation of records
· Automatic execution of workflow steps through smart contracts
· Instant, secure and low-cost exchange of data
Of course, blockchain isn’t the only answer, according to the WEF report. “Increasingly, though, the technology is proving its potential as a reliable means of unleashing faster, more efficient and less costly trade.”
Banco Bilbao Vizcaya Argentaria (BBVA), for example, has used blockchain to reduce the time for submitting, verifying and authorizing an international trade transaction from over a week to just 2.5 hours. If trade transactions shorten from a week to a couple of hours, resulting in a sharp drop in lead times, then the effects on inventory costs, indirect labor and transportation costs are easily imagined. Bain & Company estimates that distributed ledger technology, if adopted the right way by all participants in the trade ecosystem, could reduce trade finance operating costs by 50–70% and improve turnaround times three- to fourfold, depending on the trade finance product involved.
Bitfury and Mphasis will collaborate to revolutionize key areas of the global financial supply chain. We will work on new forms of tokenization to enable instant settlement of trade transactions, reduce reliance on complex FX infrastructures, and increase flexibility in liquidity management for financial institutions.
The new technology will be interoperable; functioning across all types of procure-to-pay networks, distribution platforms and trade finance consortia.
Once again, blockchain technology is tackling complex global problems with innovative solutions that hold huge potential to make the world more livable for all of us. At Bitfury, it’s just another day in the office.
