The states of Latin America and the Caribbean (collectively referred to as LAC) are on the cusp of seizing a once-in-a-lifetime opportunity. They could boost trade both within the area and with the remainder of the world and contribute to the stabilization and acceleration of the economic recovery if they use blockchain technology.
By supplying real-time information on transactions between many parties, such as organizations, distribution channels, investment pools, or even a worldwide supply chain, blockchain technology allows data to be preserved in a safe and encrypted digital format.
The increased security, transparency, and rapid traceability provided by blockchain technology are the pillars of this trust. However, in addition to addressing concerns about trust, blockchain technology offers further advantages to businesses, such as reduced expenses brought about by speed, productivity, and efficiency improvements.
Blockchain technology helps to dramatically cut overhead and trading costs by significantly lowering the paperwork and errors that need to be processed. It also helps to reduce or remove the requirement for third-party candidates or intermediaries to validate transactions.
But how has blockchain technology become a chance for technological growth for the commencement of international trade?
The Elevation Of Foreign Trade Via Blockchain Technology
The distributed ledger technology known as blockchain makes it possible for all parties to access a record that is safe but also encrypted, transparent, simple to use, and virtually hard to alter.
Although blockchain first appeared within the banking markets with the introduction of the virtual currency Bitcoin. It is now utilized in various activities, particularly those directly or indirectly associated with international trade.
The lengthy value chain associated with international trade comprises vast and complicated areas such as logistics, transportation, customs administration, financing, and standard operating procedures between firms.
All of these processes have the potential to be simplified by using this technology due to its ability to streamline them.
In addition to its many other advantages, blockchain technology streamlines operations, make it possible to track the provenance of products, and ensures the safety of financial transactions and transactions involving goods and services.
It further streamlines the process of verifying digital performance and origin certifications empower the sharing of information in real-time regarding the various stages of trade and did help improve the efficiency of the related public and private services.
Six Hard-Core Blockchain Charms To Explore
The elimination of friction and delays, as well as an increase in operational efficiency across the industry, are two of the many benefits that accrue when financial firms replace outdated procedures and documentation with blockchain technology. These benefits apply to world commerce, trade finance, settlement and clearing of personal loans, borrowings, and other transactions. Furthermore, blockchain technology has the following conveniences for systems;
- Enable the provenance of traded commodities, which helps decrease logistics expenses and protect operations from beginning to end.
- Contribute to digitizing the entire process of the rules of origin at each level; this is essential for expediting certifications and clearing customs.
- Resolve the issues that arise when governmental bodies or authorities exchange data with private firms across international borders. Eight customs administrations in Latin America and the Caribbean are now sharing data from businesses recognized as Approved Economic Operators thanks to an effort called CADENA, facilitated by the Inter-American Development Bank (IDB) as part of the LACChain program.
- Improve the interoperability between players and information access for all parties involved by modernizing Single Windows for Foreign Trade (VUCEs). This will help to streamline operations and minimize transaction costs.
- Compared to what is now feasible through the SWIFT network, this alternative can transfer payments more quickly and at a lower cost. Along with cutting down on transaction times, blockchain also makes commissions cheaper. It eliminates caps, which is especially beneficial for small and medium-sized businesses involved in international trade or linked with trade assistance bots like bitcoin traders or others.
- A credit letter can be issued within four hours rather than the seven to ten days previously required.
The Potential Challenges For Blockchain To Overcome In Future
The governments of the nations in the LAC region need to address the difficulties of using blockchain technology to make these promises a reality.
Development Of Technical Infrastructure
These difficulties can be broken down into three categories. The first problem is one of a more technical nature and pertains to challenges such as those involved with the establishment of a technology infrastructure.
Setting Up Standard Legislations
The second challenge pertains to governance and administration, specifically the requirement for standard protocols and forming the sector and corporate alliances in various LAC nations to promote connectivity and scale economies.
A Big-Scale Integration
The third problem is implementation on a big scale, which involves the quality of the data, the involvement of all parties in the transaction, the creation of all-inclusive systems, and the establishment of safe interfaces with legacy applications.
The IDB’s Integration and Trade Sector offers various technical and financial assistance programs to Latin America and the Caribbean (LAC) countries to assist in disseminating blockchain technology and its integration in global trade. These programs are based on the knowledge gained from the creation and execution of the CADENA initiative.
The Future Ahead
Blockchain technology offers answers for business operations by making international trade more straightforward, contributing to gains in competitiveness, and lowering the cost of transactions.
Even though blockchain technology has been utilized in international trade for several years, its relevance has grown significantly since the COVID-19 health recession unfolded. It is anticipated to play an even more significant part in the world after the epidemic.