How Blockchain Could Transform International Trade
Best known as the platform for cryptocurrencies like Bitcoin, blockchain technology allows transactions to be validated without the use of a centralized database. This innovation holds the potential to transform trade finance, argues SkuChain Vice President Rebecca Liao in the journal Foreign Affairs.
She observes that “because blockchain provides a distributed digital record that does not require trust or coordination between firms, it allows for secure, standardized transactions to occur almost instantaneously, even across borders” and finds that “the widespread adoption of blockchain . . . would especially benefit importers and exporters, granting them access to the financial backing that many now lack.”
The author outlines how blockchain can “reduce friction in international commerce, broaden the distribution of the gains from trade, and encourage higher economic growth.”
Regulators should welcome these developments, Liao argues. “The widespread adoption of blockchain would reduce friction in the global economy,” she writes, “and it would especially benefit importers and exporters, granting them access to the financial backing that many now lack.”
Some have compared blockchain’s transformative potential to that of the internet, setting off rapid change to its myriad potential applications. For Liao, however, “blockchain’s applications will bring about only incremental improvements.”
“The technology could eventually help big banks eliminate paper contracts, do away with clearinghouses, secure digital systems from cyberattacks, and quickly settle transactions—changes that could save such institutions hundreds of millions of dollars each year,” Liao wrote. “But getting there will take time, because the existing financial infrastructure has been in place for decades and because it is hard to get competing institutions to cooperate.”
Liao concludes, “There is a real chance that blockchain’s potential has been overhyped. In the case of trade finance, however, it might just be a tool that could make global markets more accessible at a moment when they seem to be closing off.”