A new blockchain-based trade finance platform to be developed by the Hong Kong Monetary Authority (HKMA) will eventually provide an alternative to letters of credit (L/Cs) for traders looking for secure open account transactions.

HKMA - Hong Kong's central bank - is developing the blockchain-based trade finance platform with seven major banks.

Stage one

Initially, the banks are looking to speed up mortgage loan applications by digitising mainly paper-based practices, as well as automating frequent processes and adding an extra layer of security to trade finance and identity management.

Banks involved in the project are Hang Seng, HSBC, Bank of China, Bank of East Asia, BOC Hong Kong Holdings, Australia and New Zealand Banking Group and Standard Chartered Bank. Deloitte consulting is also involved in the venture.

Stage two

"The next major milestone is to link up with other trade platforms in other jurisdictions to further facilitate cross-border trades," HKMA's deputy chief executive Howard Lee says.

He says that trading as a whole is moving away from L/Cs and that while much faster, open account trading exposes banks to the risk of fraud and money-laundering because of the lack of third-party confirmation of trades, and the fact that few individuals have access to transaction details.

The new platform aims to alleviate these risks Lee says.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.