Is “LC lite” the future of Commercial LCs?

commercial LC Lite

The Argument for Stripped Down LCs

Have commercial credits become so burdensome and unwieldy that a trimmed down version of the rules governing their practice could streamline the LC process? Could simplified rules and practices perhaps even spark increased use of this traditional (some say aging) trade product?

Voiced at ICC’s October Technical Meeting in Tbilisi, the idea of creating a simplified UCP  sparked enough interest that the notion will be explored further at the Banking Commission’s April meeting in Beijing. One major question is whether there is a sensible business case to develop a “lite” version of UCP600.  Whether the idea will gain sufficient traction is unclear, particularly given ICC’s commitment to prioritizing the e-compatibility of practice rules and the inevitable challenges of satisfying the interests of LC stakeholders across diverse markets and regions.

Another Appearance of "LC Lite"

Coincidentally, another LC “lite” is in the news. LC LITE is a project focused on developing an efficient and cost-effective digital letter of credit that will be embraced by importers and exporters. Those behind the project foresee that trade contracts, LC contracts, underlying trade documents, and related payments execution could be consumed within LC LITE’s token and smart contracts. Coinsilium, a blockchain venture builder, recently announced its partnership with LC LITE to support the project’s efforts.

For more on the noteworthy takeaways from the ICC Meeting in Tbilisi, as well as the developing story of stripped down LCs and rules, look out for the year end double issue of Documentary Credit World.

 


1 Response

  1. I hope the committee comes up with a plan to simplify the guidelines for handling commercial LCs. The demand for this product has diminished because of the costs, the process, and the complexity in handling documents especially to the exporter. I think banks have been more defensive in handling documents and citing really minor discrepancies resulting to the added costs and delays in the parties getting paid. Exporters drive the use of commercial LCs so they can mitigate their commercial risks. However, they also have to deal with compliance on the letter of credit that adds to the costs.

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