HSBC processes first blockchain letter of credit using Chinese yuan

HONG KONG (Reuters) – HSBC completed the first yuan-denominated blockchain-based letter of credit transaction, the bank said on Tuesday.

HSBC, like many of its competitors, has been looking to use digital ledger technology, or blockchain, to streamline the traditionally paper-based and bureaucratic business of financing trade.

As the first such transaction to use the Chinese currency, this deal marks a step forward in the use of the Voltron trade finance platform, developed by eight banks including BNP Paribas, and Standard Chartered as well as HSBC.

So far transactions using the platform have primarily been individual pilot cases, but Ajay Sharma, HSBC’s regional head of global trade and receivables finance for Asia-Pacific, said that progress was being made toward a full proposition, and what could be a commercially acceptable model for banks.

“We are hoping that we will have something by end of the year, maybe the first quarter of next year, where will we know from Voltron what it costs, at which point, a lot of banks who might be sitting on the sidelines will be able to make a decision,” he said.

“Clearly we are hoping that through this technology, the unit cost of doing a transaction comes down, along with other benefits, such as speed.”

HSBC said, citing SWIFT data, that 1.2 million letters of credit, documents issued by a bank guaranteeing a buyer’s payment to a seller, worth US$750 billion were issued into and out of China alone in 2018.

This particular deal involved Hong Kong-based MTC Electronic exporting a shipment of LCD parts and panels to its parent company, Shenzhen MTC, based across the border from Hong Kong.

The exchange of the electronic documents was completed in 24 hours, compared to the typical five to 10 days for conventional document exchange, the bank said.