Four major banks have joined a trade finance initiative that aims to provide a digital alternative to paper-based letters of credit (L/Cs) in trade finance transactions.

Bank of Montreal, CaixaBank, Commerzbank and Erste Group are now taking part in the project, which is being built on top of the open-source Hyperledger Fabric framework.

Smart contract

Launched late last year by UBS of Switzerland and tech giant IBM, the platform named as Batavia merges trade finance transactions, foreign exchange payments and more, into one single, elaborate smart contract.

Instead of using paper-based L/Cs, trade finance transactions would be executed through smart contracts that contain self-executing pieces of code that trigger successive activities when certain conditions are met.

Test phase

Batavia is hoping to start a test phase involving customers sometime in 2018 but the participants have not been revealed.

IBM has previously worked on research in this area with the Dubai government and banks including Santander and Emirates NBD.

Hyperledger Fabric

Sometimes described as a blockchain framework implementation, Hyperledger Fabric is hosted by the non-profit Linux Foundation, which builds sustainable systems around open source projects to accelerate technology development and commercial adoption.

IBM and 29 other companies formally established Hyperledger with the foundation in 2016.

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