The Role of Blockchain in International Trade
Can blockchain technology be a pioneer in improving international trade? The countries of Latin American and the Caribbean (LAC) have already spoken of the opportunities that blockchain in international trade brings. According to the experts there, the security and efficiency that a blockchain provides can be useful in managing international trade. They have even published a report which analyzes and examines different perspectives of using blockchain technology in international trade.
Similar to what these countries are hoping, there are several other enterprises and even governments, who incline towards the use of blockchain in international trade. In this post, we learn the role of blockchain in international trading.
Blockchain In International Trade
Source / Role of Blockchain in International trade
Let’s first understand what aspect of the blockchain technology seems to be beneficial for international trade. Blockchain technology is an efficient way of managing all kinds of transactions. In order to add any information to a block, the whole network should agree to make the changes and it needs to be verified. This means that any information related to the trading system cannot be altered by any one node. All the participants in the network get notified of all the additions to the blockchain and every information is available to them.
Blockchain technology helps in getting real time information to every participant in the network, be it MNCs, governments or the individuals.
The role of blockchain in international trades can be varied. It can easily optimize the whole trading process since smart contracts can be used to initiate a transaction. Further, the transparency and immutability of blockchain ensures trust between the parties. All the information related to goods purchased can be easily traced using a blockchain as well.
To put it simply, blockchain helps in simplifying and decentralizing cross border trading.
Benefits of Blockchain In International Trade
Let’s try to understand some of the benefits that blockchain in international trade provides to the different parties involved.
· The logistics costs for different components involved in an international trade are lowered with use of the blockchain technology. Goods are easily traceable from the start to the finish.
· The information related to the origin of the trade and all the goods is digitally secured and accessible to all counterparties on the blockchain. This makes the clearance of custom procedures and other trading conventions easier as the security personnel can easily verify all the details.
· Through mutual relations agreements, blockchain technology can be used by public and private agencies to share various information related to international trades. It therefore helps in solving the issues related to cross-border data exchange.
· Blockchain technology helps in promoting a single window for all trading activities. This helps to reduce the transaction costs related to verifying the trade with multiple authorities. Blockchain also promotes interoperability and sharing of information between all the parties involved.
· Lastly, blockchain technology can help in improving the whole cross-border payment scenario. The DeFi options provided to the stakeholders can help in making transactions within mere hours. This is much faster than systems like SWIFT.
Challenges Faced By Implementing Blockchain In International Trade
Now that we have discussed all the benefits of blockchain in international trade, let’s also understand how it can pose a challenge. The first problem faced by the stakeholders involved in an international trade is developing a technical infrastructure for the implementation of blockchain. Use of blockchain technology requires a complete network of participants, and the nodes have to continuously verify and add the information to the block. It all requires a vast setup which will pose significant initial costing.
Secondly, being a relatively new concept, the role of blockchain in international trade is limited by the lack of memorandum. Governments and all the parties involved will require a new set of administration and memorandums for making it the new normal.
Current Implementation of Blockchain In International Trade
One of the cases of implementation of blockchain in international trade is by the French retailer Auchan. They have implemented blockchain to trace and verify the trade components coming from multiple places. Blockchain technology is used to create an international food traceability system. They track the food and other goods incoming from Vietnam, France, Portugal, Spain and other countries. Using QR codes, this system helps in recording every aspect of the goods and the trade information. It is done right from the farm until the retail store of Auchan.
We have now discussed the positives and the challenges brought on by the use of blockchain technology in international trade. Even though it is a technology that will surely prove beneficial in the future, currently, it requires a robust technical infrastructure and a set of global regulatory measures to be implemented.
With the right amount of support and administration, blockchain technology can easily replace the conventional method of tracking and managing international trade.
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