Hong Kong is looking into building a trade-financing system using blockchain technology, a senior official said. Blockchain, the decentralized encryption technology behind cryptocurrencies, could provide “great benefits” to trade finance in countries participating in China’s Belt and Road initiative, said James Henry Lau, Hong Kong’s Secretary for Financial Services and the Treasury, at a forum Friday.
Blockchain works by automatically recording transactions in inerasable digital ledgers distributed across a network in which all data is visible to every member of the network and transactions don’t require a central authority’s approval. This technology could cut the huge input of human resources and time that trade financing traditionally requires, reduce chances of fraud and lower companies’ investment costs through more efficient settlements, according to Lau.
Trade along the Belt and Road is mostly conducted by small and medium-sized enterprises, so blockchain’s distributed ledger technology could help by cutting out the need for a central organization and middlemen.
In March, Hong Kong completed a proof-of-concept project that demonstrated how blockchain can be used to digitize contracts and cut the risk of fraud and duplicate transactions.