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HSBC Holdings Plc announced that it had performed the world’s first trade finance transaction using blockchain technology, a major step in boosting efficiency and reducing errors in the multi-trillion-dollar funding of international trade.

HSBC and Dutch bank ING successfully completed the transaction for food and agricultural group Cargill, the Bank said in a statement.

A Euronews report states that the use of blockchain technology in the banking industry is expected to reduce the risk of fraud in letters of credit and other transactions as well as cut down on the number of steps used. 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 takes between five and 10 days to exchange documentation.

“What this means for businesses is that trade finance transactions have been made simpler, faster, more transparent and more secure.”

Putting all of Asia Pacific’s trade-related paperwork into electronic form could slash the time it takes to export goods by up to 44 percent and cut costs by up to 31 percent, the HSBC statement said, citing a study by the United Nations.

The FT reports that the introduction of blockchain, which underlies cryptocurrencies such as bitcoin, is expected to shake up the centuries-old trade-finance industry, reducing the numerous documents and several days of processing needed for a single transaction to a paperless task that can be completed in hours. The distributed ledger technology behind Blockchain has the potential to be used for encrypted and unhackable record-keeping across a range of industries, from property registration to medical records and insurance claims.

The deal was completed using the R3 Corda platform, with a cargo of soybeans exported from Argentina to Malaysia.

Cargill was the exporter and importer on a deal that saw Cargill Geneva selling soybeans on behalf of Cargill Argentina, and Cargill Singapore buying it on behalf of Cargill Malaysia.

It was done using the letter of credit (LC) module of Corda, which has been developed by 12 banks. This enabled the transaction time to be reduced from a standard five to ten days, to 24 hours. The LC was issued by HSBC, with ING acting as the advising bank. The value of the transaction has not been disclosed.

While the LC was executed on blockchain, other elements of the transaction cycle – such as the bill of lading – were not.

Source HSBC, FT, Euronews, Global Trade Review