Trading internationally involves the exchange of goods and services among states. Different countries all over the globe are engaged in export or import. Some countries can efficiently produce some commodities, which they export to countries that can not efficiently manufacture them. At the same time, countries may lack resources or some goods that they import from other countries. That is how import and export take place. It is advantageous in expanding markets due to a reduction in the production cost and price of commodities. This complex process is known as international trade that depends on several factors, including financial, technological, or socio-political.
Blockchain technology has revolutionized trading globally, and it will do so in the upcoming times because the technology is still at its beginning. Hence, blockchain technology plays a crucial role in international trading, whether beneficial or challenging.
International Trade and Blockchain Technology
International trade is a complex process, and the transactions rely greatly upon paperwork. The paperwork comprises documentation related to commercial transactions, commercial invoices, trade financings such as letters of credit, billings concerning transport, and border procedures based on a lot of paper. These procedures ultimately increase administrative and coordination costs. Moreover, such lengthy systems are vulnerable to errors and scams. Although these issues have been reduced considerably through complete digitalization, the complexity and costs still can’t be reduced.
Consequently, governments, firms, and companies are considering blockchain to vanish the limitations of international trade. Blockchain can affect trade because it can dramatically reduce paperwork and improve export, import, trade finance, and border procedures. Hence, a paperless trade is achievable through blockchain technology.
Benefits of using Blockchain in International Trade
Blockchain technology is based on a digital ledger that records the transactions made between two parties. There is no need for a third party to act as a recordkeeper. There are various benefits of blockchain technology in trade. They are discussed below:
- International trade is based on third-party insurance or lending, and 80% of global trade works like this. Hence, the usage of blockchain technology can significantly reduce the expense and time required in such scenarios.
- Small or medium-sized enterprises are mostly restricted to access credit, and there are firms whose financial markets are not that much developed. Such firms and enterprises significantly benefit from the reduced cost and time possible due to blockchain technology.
- The technology can drastically reduce paperwork and cost often associated with licensing, shipping, and customs declarations.
- Blockchain can accelerate custom procedures. These procedures are impactful on trade volumes and economic output and are estimated to be greater than tariffs.
- Blockchain can enhance the supply chains so that real-time details on the movement and origin of goods are achievable.
- Blockchain, if adopted for trade, must not have anonymity. It will greatly help the flow of legitimate trade.
Different entities make public and private sector efforts to discover the benefits of blockchain. Blockchain technology is in its infancy. It will only flourish in an appropriate policy environment that will allow experimentation and innovations under terms and policies that govern international trade.