Blockchain, a form of distributed ledger technologies (DLT), can play a major role in the trading economy. The roles include reducing the worldwide trade finance gap, and enabling trade that otherwise could not take place. These are findings from a study by the World Economic Forum and Bain & Company.
Effects largest in emerging markets
Its effects would be largest in emerging markets and for small and medium-sized enterprises (SMEs). This shows the use of the technology beyond large corporations and developed markets.
The global trade finance gap currently stands at US$1.5 trillion, or 10% of merchandise trade volume. The Asian Development Bank calculates that the gap will widen to $2.4 trillion by 2025.
But a study shows that DLT can reduce this gap by $1 trillion.
The largest opportunities could come from smart contracts, single digital records for customs clearance.
They would help mitigate credit risk, lower fees and remove barriers to trade.
But a study shows that DLT can reduce this gap by $1 trillion.
The largest opportunities could come from smart contracts, single digital records for customs clearance.
They would help mitigate credit risk, lower fees and remove barriers to trade.
If implemented, the main beneficiaries are SMEs and emerging markets. This is because they suffer most from a lack of access to credit and have ample room to grow trade.
“Implementing blockchain-based solutions can eventually do more for SMEs in emerging markets than removing tariffs or closing trade deals,” said Wolfgang Lehmacher, head of supply chain and transport industry at the World Economic Forum.
“Implementing blockchain-based solutions can eventually do more for SMEs in emerging markets than removing tariffs or closing trade deals,” said Wolfgang Lehmacher, head of supply chain and transport industry at the World Economic Forum.
The trade financing issue, and the proposed DLT solution, are particularly important for Asian economies. These include ASEAN, China and Hong Kong SAR, India and Korea.
They account for almost three-quarters of total documentary for import-export transactions, and account for almost 7% (or $105 billion) of the trade finance gap.
They account for almost three-quarters of total documentary for import-export transactions, and account for almost 7% (or $105 billion) of the trade finance gap.
A need for coordinated approach
But for countries to benefit, they will need a coordinated approach.
“The benefits of adopting DLT in trade will affect everyone from banks to companies to governments to consumers,” said Gerry Mattios, Expert VP at Bain & Company, and a key contributor to the study.
“But action has to be taken in a collaborative way and with an ecosystem approach in mind. Individual actions won’t bring the expected results.”
“But action has to be taken in a collaborative way and with an ecosystem approach in mind. Individual actions won’t bring the expected results.”
If the recommendations are implemented and the estimated impact materializes, it would be one of the first cases where blockchain is mostly beneficial to SMEs and emerging markets. This is as opposed to large banks or technology companies in developed markets.
Download full report here.
Download full report here.
