Trade Finance Forum › Forums › Market Regulations › Laws and Bills › State the drawbacks and benefits of how technological advancements like blockchain and electronic documentation impact international trade in terms of letters of credit. › Reply To: State the drawbacks and benefits of how technological advancements like blockchain and electronic documentation impact international trade in terms of letters of credit.
A letter of credit is a financial instrument that facilitates trade between a buyer and a vendor. The threat of non-payment is passed from the vendor to the bank involved, making them the most secure payment method for exporters. The difficulty is that submitting records like the bill of lading, inspection and government inspection certificates, and bank drafts requires a physical component. If these papers are late or include errors, modifications to the original letter of credit may need to be provided and approved, or the documents must be recreated and resubmitted. This might result in long delays as both parties negotiate the disposition of the products. For organizations new to letters of credit, the likelihood of these difficulties occurring increases, nullifying the advantages of a process designed to comfort parties and mitigate risk.
Digital trade finance products are crucial for lowering the risks connected with international trade, including credit, political and country risks. They enable organizations to minimize the costs and time involved with manual operations, securely transfer trade papers, reduce fraud, and offer all stakeholders real-time visibility and transparency. In addition, they streamline operations and boost competitiveness, enabling organizations to perform better and capitalize on new possibilities in international trade.