Making global trade smarter

Blockchain technology has myriad applications that help make global trade smarter. This makes it a powerful tool in the hand of MSMEs to increase their international footprint.

The international trade market has marked a rise of about US$ 7.7 trillion dollars as of Q1, 2022 (UNCTAD). The fragile position due to COVID-19 and the Ukraine-Russia War is accentuated by implementation of outdated technologies. Execution of international contracts and the trading mechanism as well as the payment system have been affected by operational inefficiencies due to heavy dependence on manual processes & documentation. Here, blockchain can play a major role.

Blockchain has been defined as a decentralized system that enables involved parties to independently build a network and store the required information. The entire database is built and encrypted with the help of complex algorithms that intend to simplify data security and integrity of information. The underlying principles of blockchain technology involve decentralization and disintermediation, transparency of data, immutability, consensus in trade as well as reliability and trust. It can bring a spur in the global market through smoother operations, data transparency, efficiency in cross-border transactions, and standardization of business. Let us see how:

Global trading mechanism

• It can push down the delay in transaction time by real-time verification of financial documents.

160

140

120

100 GLOBAL CROSS-BORDER PAYMENTS FLOW

127.8 134.3 141,1 148.3 155.9

2018 2019 2020 2021 2022

Source: Ernst and Young (All figures are in US$ trillion) • It can help execute smart contracts to reduce the costs involved in the complicated legal framework. • Earlier, third-party transactions concerning funding and payment have paved the way to the risk of fraud. Blockchain eliminates this correspondent relationship.

Documentation management

• Documents are issued by an importer, exporter and carrier, for payment clearance. Blockchain can help expedite the entire chain. • A smart bill of lading can help digitize transport documents. • Blockchain shall also encourage a paperless documentation process such as for customs and trade.

Cross-border transactions

• Through implementation of blockchain technology in payment systems, transaction fees have also been lowered, and will thus attract larger participation. Not only the corporates but government organisations have also steadily moved towards the technology.

From cross-border transactions to customs clearance, transportation and logistics, blockchain technology has myriad applications in making global trade smarter. This makes it a powerful tool in the hand of MSMEs across the world to increase their footprint in global trade, as technology eases the barriers to trade. However, these opportunities can only be realized if they have access to the right technical knowhow and internet access.

Further, advanced technologies, in particular the rise of quantum computing, could pose security challenges for this technology. Post-quantum technologies can be a way to safeguard blockchain from such risks. Lastly, a comprehensive global legal system needs to be in place to ensure transparency and efficiency of blockchains.