Global banking giant HSBC has completed the first ever blockchain letter of credit denominated in the Chinese yuan. The transaction, which was completed on September 3, involved the exportation of LCD parts from a company in Hong Kong to Shenzhen in China. The transaction, which takes up to ten days, was completed in just 24 hours, a report by Reuters revealed.
The London-based bank has been among the banks that pioneered the integration of blockchain technology into the banking systems. In 2018, it made history by becoming the first bank to complete a trade finance transaction on the blockchain. And now, the bank has used its Voltron blockchain platform for the first yuan-denominated letter of credit between Hong Kong-based MTC Electronics and its parent company Shenzhen MTC.
The Voltron blockchain platform is a partnership project between eight banks that seeks to introduce efficiency in the tedious and costly trade finance process. They include Standard Chartered, INB Bank, NatWest, Bangkok Bank and BNP Paribas. So far, the platform has been used for pilots by the members, but beginning with this transaction, this is set to change soon. HSBC’s regional head of global trade and receivables finance for Asia-Pacific Ajay Sharma told Reuters that progress was being made towards a commercially acceptable model for banks.
He stated, “We are hoping that we will have something by end of the year, maybe the first quarter of next year, where will we know from Voltron what it costs, at which point, a lot of banks who might be sitting on the sidelines will be able to make a decision. Clearly we are hoping that through this technology, the unit cost of doing a transaction comes down, along with other benefits, such as speed.”
Despite being an integral part of the global economy, the trade finance industry is still notoriously slow and costly. The exchange of letters of credit, which account for 15% of all global export transactions, still take up to ten days according to SWIFT data.
HSBC has been applying blockchain technology in other areas as well including in the foreign exchange market. As CoinGeek reported earlier this year, the bank revealed it had reduced the cost for its forex business by 25% by using a blockchain-based trading system. HSBC handles over 5,000 forex trades a day totaling up to over $350 billion.
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