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Cross-border digital trade finance

Breaking Borders: The Ascendance of Digital Trade Finance

Cross-border digital trade finance is a rapidly growing sector that offers many benefits for businesses and consumers. It enables faster, cheaper, and more secure transactions across borders, reducing the risks and costs associated with traditional trade finance methods. It also creates new opportunities for regulators, policymakers, and industry players to collaborate and innovate.

Technological Innovations Driving Cross-Border Digital Trade Finance

Cross-border digital trade finance involves the use of digital technologies, such as blockchain, artificial intelligence, and smart contracts, to facilitate seamless and transparent trade finance transactions. These technologies can help to:

  • Simplify the payment process by allowing buyers and sellers to make and receive payments in multiple currencies with low fees and real-time exchange rates.
  • Provide access to financing by connecting buyers and sellers with verified financiers, who can provide financing for trade transactions based on the creditworthiness of the parties and the quality of the goods.
  • Enhance the verification process by using blockchain and smart contracts to verify the identity, reputation, and compliance of the parties involved in a trade transaction, as well as the authenticity and condition of the goods.
  • Improve the protection process by providing insurance and dispute resolution services for trade transactions using blockchain and smart contracts to ensure fair and timely claim settlement.

The Benefits

Cross-border digital trade finance can revolutionise the industry by offering a comprehensive and integrated solution that addresses the pain points of traditional trade finance methods. By using cross-border digital trade finance, businesses and consumers can enjoy:

  • Faster transactions: Cross-border digital trade finance reduces the time required for trade finance transactions from weeks or months to days or hours by eliminating intermediaries and paperwork and automating processes.
  • Lower costs: Cross-border digital trade finance reduces the costs associated with trade finance transactions by offering competitive fees and exchange rates and minimising the need for collateral and guarantees.
  • Greater security: Cross-border digital trade finance enhances the security of trade finance transactions by using blockchain technology to ensure data integrity, encryption and immutability, and smart contracts to enforce contractual obligations.
  • More transparency: Cross-border digital trade finance increases the transparency of trade finance transactions by providing real-time visibility into the status, location, and condition of the goods, as well as the identity, reputation, and compliance of the parties.
  • More access: Cross-border digital trade finance expands access to trade finance opportunities by enabling small and medium-sized enterprises (SMEs) and emerging markets to participate in global trade by lowering the barriers to entry and increasing the availability of financing.

India: A Growing Powerhouse

India is one of the largest markets for cross-border digital trade finance, with an estimated USD 83 billion worth of inward remittances in 2021, mainly from the Middle East and the USA, observes PwC India. India’s cross-border remittances have been growing steadily at a CAGR of 8% since 2016, driven by the increase in global mobility of goods and services, international travel, and the international workforce. India’s digital payments market is also expected to more than triple from USD 3 trillion to USD 10 trillion by 2026, creating huge opportunities for cross-border digital trade finance, according to Hinrich Foundation.

India is also a leader in adopting cross-border digital trade finance, with a progressive regulatory framework for cross-border payments that supports innovation and consumer protection. India has adopted various modes of remittance, such as SWIFT/correspondent banking, post office money orders, Rupee Drawing Arrangement (RDA), and the Money Transfer Service Scheme (MTSS), as well as new technologies such as blockchain and smart contracts. India is also exploring the possibility of issuing its own central bank digital currency (CBDC), the “digital rupee”, and enabling cross-border payments using it.

India has a lot to gain from cross-border digital trade finance, as it can boost its economic growth, development, and diversification. It can also enhance its competitiveness in global trade, create more employment opportunities for its workforce, and improve financial inclusion for its population.