New Paper Suggests Blockchain can Grow Trade by 1 Trillion
A present-day USD 1.5 trillion global trade finance gap projected to widen to USD 2.4 trillion by 2025 can be narrowed by USD 1.1 trillion through use of blockchain and other distributed ledger technology (DLT), according to a White Paper released by the World Economic Forum and Bain & Company earlier this month.
Bold Blockchain Claims
Titled “Trade Tech – A New Age for Trade and Supply Chain Finance”, the report’s modeling suggests that DLT can facilitate some USD 1.1 trillion in new trade volume globally. The report further contends that much of today’s traditional documentary trade will also be transformed by DLT. It projects that some 40% of traditional documentary trade (USD 0.9tr) will seize efficiencies by shifting to DLT by 2025. Another 20% will gravitate to open account due to “greater trust and visibility” while 40% of documentary trade will remain traditional (LCs, guarantees). The Authors project that SMEs and Asian-based traders who rely on LCs (when able to use them) stand to gain the most from the digitalization of trade.
Interestingly, the report also exhorts governments at all levels to pick up the pace in adopting digital technology for trade processes. For instance, the report says EU countries and government departments “have yet to harmonize their documents” and need to better embrace DLT in shaping regulatory considerations. “With some governments already starting to make these moves, the laggards will become increasingly disadvantaged.”
While these are not the first claims about blockchain and distributed ledger transforming trade finance, the results in the study are certainly compelling. Keeping in mind the relatively fresh news of HSBC's blockchain trade finance transaction, as well as Singapore's blockchain eCO, this white paper appears to simply project further into the future for changes already taking place. If the authors are indeed correct that traditional trade stands to gain much by further reliance on blockchain and DLT, it is the job of the trade finance community to meet the coming tide with eyes wide open.