The US treasury department's Office of Financial Innovation and Transformation (OFIT) has announced a blockchain or distributed ledger technology (DLT) letter of credit (L/C) pilot proof of concept project.

It will use simulated L/Cs to find out whether financial management can be improved by using blockchain.

Hands-on experience

Building on two earlier blockchain projects, OFIT is partnering with the National Science Foundation (NSF) and the Fiscal Service's Payment Management division to carry out the project to acquire what deputy chief financial officer at NSF, Mike Wetklow, describes as "hands-on" experience of how DLT might improve payment processes.

The exercise will involve tokenising (digitally representing) and transferring payment authorisations within a simulated L/C system. L/Cs are frequently used to award federal grants.

Customer experience

The project will be carried out in a permissioned, DLT network and aims to provide a better understanding of the impact of blockchain on settlement times and payment request workflows.

It also aims to examine how enhanced transparency could alleviate the financial reporting burden for both prime and sub-recipients, and improve the customer experience.

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