Globalisation has undoubtedly bolstered positive economic growth, but the world’s increasing interconnectivity is coming at a high price. Amidst heightened efficiency requirements and stringent quality standards, many companies are struggling to adequately finance their supply chain operations to meet the growing global demand. As one of the world’s most innovative and technology-forward countries, Singapore is leading the charge in exploring how blockchain, the same technology underpinning cryptocurrencies like bitcoin, can streamline burdensome supply chain processes and breathe new life into the commercial ecosystem.
In recent years, Singapore has explored how it could become the leading trading epicenter of the East. In May, its lofty ambitions came to fruition when major multinationals HSBC and ING Bank executed the world’s first-ever trade finance transaction on the blockchain with Singapore-based food conglomerate Cargill. The exchange showcased the tremendous potential of blockchain to usher in a new era of supply chain financing, lowering transaction fees, liquidating assets, and, perhaps most importantly, encouraging trade.
However, to fully understand the implications of this development, it’s important to understand the reasons why Singapore initially invested in this groundbreaking technology. Blockchain is a decentralised and immutable ledger of information that is distributed across a network. Instead of being controlled and maintained by a single entity, blockchain transactions are verified by multiple participants, dramatically speeding up record reconciliation times compared to traditional systems.
For companies in Singapore, many of which are challenged by geographic proximity to international heavyweights like China and Japan, providing a commerce network separate from the fluctuating sentiments of centralised governments has the potential to counteract declining trade. As a result of the recent isolationist mandates by U.S. President Donald Trump, Singapore has seen significant losses in its economic position, plummeting stock prices to a nine-month low. If this were to continue, trade deficits in Singapore could have a detrimental impact on its geopolitical standing.
Using blockchain, however, Singapore-based companies have a unique opportunity to position themselves at the forefront of technological innovation. A primary way they can do this is through improved access to capital. Blockchain technology lets companies offer cryptocurrency-based loans at a fraction of what most banks traditionally require, spearheading the creation of an exchange network that overcomes many of the obstacles otherwise preventing economic growth. No longer would companies have to worry about exchanging assets into foreign currency, because cryptocurrency offers a viable means for seamless cross-border transactions. What’s more, companies no longer have to cut through excessive bureaucracy to access their accounts receivable, because blockchain’s verifiable network can conduct once lengthy transactions instantaneously. For companies based in Singapore, many of which are up-and-coming startups or multinationals that recently formed headquarters in Asia, lower cost of liquidity allows for heightened opportunity, which ultimately contributes to economic progress.
In November of 2017, the Monetary Authority of Singapore announced the creation of a cross-border blockchain solution for trade finance between Hong Kong and Singapore that would go live by early 2019. The platform uses blockchain to restrict duplicate invoice financing, a problem which has long plagued the trade finance sector in Asia. However, they also hope to expand the scope to digitise the archaic letter of credit process.
In the race to dominate a rapidly-evolving trade ecosystem in the Asia between China and Japan, Singapore’s role is mistakenly discounted by many industry experts. As the country continues to harness the power of blockchain technology, however, Singapore will pioneer the dawn of new, smart supply chains — ones that are unrestricted by frozen assets and excessive bureaucracy. First Singapore, then the world.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Scott Nelson is the CEO of Sweetbridge, a global alliance that is leveraging blockchain to accelerate trade-financing and offer low-interest loans. Prior to Sweetbridge, Scott founded and led Trax Technologies as CEO as it evolved from a small logistics consulting and software firm over 22 years into a global SaaS and services company operating on four continents.