October 23, 2016

...AND CHEAPER...:

Aussie Bank's 7000-Mile Blockchain Experiment Could Change Trade (Emily Cadman, October 23, 2016, Bloomberg)


As port staff scan the bales, an update to an electronic contract will be triggered, transferring ownership of the goods and authorizing the release of payment. The deceptively-simple sounding process is only possible because digital-ledger technology encrypts and stores the parameters of the contract, ensuring all parties are working off the same synchronized version, which cannot be unilaterally altered or tampered with.

This assurance allows the various phases of the transaction to be coded into the smart contract, and triggered automatically when certain conditions are met, without the need for a long-winded paper trail and human authorization. The experiment offers a glimpse into how transactions might one day be managed in the $4 trillion trade-finance industry, a global business that's been in the spotlight in recent years owing to high-profile fraud cases.

"This is a truly innovative step," said Scott Farrell, a Sydney-based partner at law firm King & Wood Mallesons who sits on the Australian government's financial technology advisory body. "This experiment turns up the dial," he said in a telephone interview.

While other banks have researched blockchain solutions for trade finance, Commonwealth Bank and Wells Fargo appear to be the only ones to publicly announce a real-world transaction for one of the most cumbersome processes in global finance. Reams of paper, faxed statements and multiple contracts typically follow the movement of goods around the world through the hands of exporters, shipping companies and importers -- and all of these must be kept synchronized.
As well as the risk of human error, the process is also highly vulnerable to fraud. Qingdao, where the ship will dock, was at the center of a multi-billion dollar scam in 2014. The Chinese government discovered that firms were taking advantage of inefficiencies in the paper-based system to use the same stockpile of metals to secure multiple loans.

"Trade finance is one the most clunky processes in business," Michael Eidel, head of transactions at Commonwealth Bank, said in an interview at the bank's office in Sydney. "It is ripe for disruption."

Posted by at October 23, 2016 6:46 PM

  

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