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Can blockchain make trade finance more inclusive?

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Abstract

There is little doubt that blockchain technology will change global trade. The question, however, is how it will impact some of the most intractable issues in trade finance. Last year, U.S.$15.5 trillion of merchandise exports were transported around the world. Up to 80% of global commerce requires trade finance to provide liquidity and risk mitigation. However, inefficiencies in trade finance today mean that many applications go unfunded. This U.S.$1.5 trillion trade finance gap is widest in emerging markets and for small- and medium-sized enterprises. Efforts to address these shortfalls have gained limited traction due to the decentralized nature of trade. In this paper, we review the design of enterprise blockchains to explore how changing the architecture of trade finance could impact the drivers of trade finance gaps. By grounding our analysis in the technical architecture of a live, enterprise blockchain platform, we aim to provide a tangible discussion around the technology. Applying blockchain technology to trade finance – regardless of the top of stack application – will directly impact the flow of information, compliance challenges, and profitability in ways that can contribute to a more inclusive trade finance structure.

Suggested Citation

  • Jessel, Benjamin & DiCaprio, Alisa, 2018. "Can blockchain make trade finance more inclusive?," Journal of Financial Transformation, Capco Institute, vol. 47, pages 35-50.
    • Handle: RePEc:ris:jofitr:1608
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    Citations

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    Cited by:

    1. Shuchih Ernest Chang & Hueimin Louis Luo & YiChian Chen, 2019. "Blockchain-Enabled Trade Finance Innovation: A Potential Paradigm Shift on Using Letter of Credit," Sustainability, MDPI, vol. 12(1), pages 1-16, December.

    More about this item

    Keywords

    trade finance; finance; trade; blockchain; distributed ledger; distributed ledger technology; DLT; corda; R3; capco; gap; oracle; oracles; notary; notaries; credit; letter of credit; credit gap; bill of lading; digitization; cryptography; SME; demurage; innovation; hsbc; multi-sig; multisig; truth; truth layer; trust;
    All these keywords.

    JEL classification:

    • B27 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - International Trade and Finance
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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