Overcoming regulatory challenges to leverage blockchain for global trade
Global competitiveness demands a coherent blockchain strategy. Nigerian financial institutions hold the expertise to develop a progressive blockchain response
Blockchain is the future of trade.
In many ways, it’s too good to be true, yet it is. Mankind has finally developed a virtual – and permanently visible – distributed ledger that coordinates trade processes, makes goods traceable and guarantees payment and finance. While digitally creating and verifying origin certificates and sharing information in real-time across all counterparties to trade transactions, blockchain also smoothly integrates relevant public and private services.
The Inter-American Development Bank summarised the benefit of countries adopting coherent and globally coordinated blockchain strategies.
Specifically, blockchain enabled trade:
- facilitates the traceability of goods, reducing logistics costs and managing risk across all elements of the transaction
- digitises the rules of origin process, streamlining certifications and customs processes
- solves the challenges of cross-border data sharing between public entities and private companies
- streamlines operations and reduces transaction costs by increasing inter-operability
- provides access to information for all counterparties party to transactions
- transfers payments more quickly and at a lower cost than existing SWIFT networks
- dramatically reduces letter of credit issue speeds – from weeks to hours
In short, blockchain simplifies and speeds up cross-border trade while significantly reducing costs. Accessible remotely from anywhere in the world, blockchain is set to see a far greater number of much small traders – and even private individuals – join the global trade ecosystem. In this sense, blockchain represents the democratisation of trade.
The benefits of reducing the costs and duration of moving goods between countries around the world – while also making global trade more accessible to all, has profound implications for economic growth. This is especially so for emerging SMEs in developing countries with volatile currencies, located away from the major hubs of trade, or not yet integrated into established trade networks.
Given the profound growth and wealth creation implications of many more Nigerian businesses – no matter how small – involving themselves in global trade, it is extremely important that both Nigeria’s financial services sector as well as the country’s regulators quickly develop a coherent approach to – and clear policy on – blockchain.
This challenge is not unique to Nigeria.
As blockchain integrates more stakeholders from different countries, using different currencies and governed by different rules, systems and authorities on to a single platform, governance ecosystems have often struggled to accommodate it within existing regulatory environments.
To date the Central Bank of Nigeria (CBN) has issued circulars proscribing cryptocurrencies. The CBN has, however, been silent on blockchain. While cryptocurrencies use the same distributed ledger technology as blockchain, cryptocurrencies are merely one of the applications that use or rely on blockchain. Blockchain-enabled trade transactions are entirely different and separate from cryptocurrencies.
While the potential of cryptocurrencies requires official and informed examination, Nigeria’s financial services sector and the broader economy require clear policy guidelines on the use of blockchain for global trade.
Most developed world financial institutions, including Bank of America, Citi and Commerzbank in Germany, for example, have all developed blockchain-enabled trade solutions. These products have been accommodated and governed by adapting financial services regulation already developed for other digital financial services solutions.
As a Nigerian financial services organisation, Coronation Merchant Bank is already regulated by the CBN. This regulation covers digital services like Coronation TradeDirect, Coronation’s virtual trade platform that allows initiation of trade transactions, document tracking and custom duty payments. The regulatory architecture that currently governs Nigeria’s financial sector – especially all its digital trade and payments solutions – provides a solid framework on which to graft relevant and effective blockchain regulation.
Banks and other institutions across the financial services sector in Nigeria already work with international counterparts which successfully use blockchain. The industry is therefore well placed to collaborate on the development of appropriate domestic policy on blockchain.
With banks, enterprises and individuals around the world already active on blockchain, it is extremely important that Nigerian institutions, enterprises and individuals are not excluded from this significant new technology – and the profound growth and access opportunity that it presents.
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