Chapter 17: Adaptation of Blockchain Technology into the Letter of Credit (LC) Arrangement: An Overview of the Sustainable Business Practice in Asia

Purpose: This study aims to explore the efforts of several Asian countries adopting blockchain-enabled letter of credit (LC) processes and highlight the key challenges hindering blockchain adoption into the entire LC system.

Need for the study: As trade volume among countries grows, nations should agree on the technology’s application mechanism to prevent disputes over discrete practices. As blockchain is a borderless approach, the global context of the applications should be considered, incorporating the cases of Asia, the hub of intraregional collaboration in trading.

Methodology: This chapter has surveyed the existing literature to identify the dichotomy between blockchain-enabled LC and traditional LC. Ten Asian countries were selected considering their adaptation motivations, number of use cases, and economic outlook. The case-study method was applied to compare the counties.

Findings: Countries reported blockchain-enabled LC as time-efficient, less costly, and secure. Interoperability, scalability, the absence of legal and administrative infrastructure, stress for new skills, and cyber security concerns are the most cited challenges among users. Instances of regulatory sandbox and collaborative effort were found among some countries, although some countries have yet to publish application guidelines.

Practical implication: The study provides comparative pictures of blockchain-enabled LC systems adopted by several Asian countries. This will contribute to future collaboration between Asian countries to create a unified and standardised trade financing platform. The study will also contribute to the future formulation of guidelines for administrative methodologies of the permissioned blockchain application in the trade finance section.