Bank of Shanghai and China Construction Bank have signed an agreement to launch China's first blockchain-based letter of credit (L/C).

Bank of Shanghai has also entered into a strategic cooperation arrangement with IT solutions and service provider Jiangsu HopeRun Software (JHS) to officially unveil an L/C platform using blockchain.

Development rationale

The banks and JHS say they are developing the blockchain L/C because paper-based L/Cs can be slow and error prone because so many documents need to be presented to facilitate the payment.

They argue that because blockchains are ledgers of digital transactions maintained by a network of computers without a centralised authority, once entered, information cannot be altered or tampered with.

SME focus

The blockchain-based L/C has the potential to speed up the documentary process and minimise security risks according to a statement issued on behalf of the three participating organisations.

Bank of Shanghai says it will make it a priority to develop supply chain finance by applying big data and blockchain to establish an open financial services system and assist small- and medium-sized companies to raise funds.

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