### Exploring the Role of Letters of Credit and Blockchain Technology in International Trade

#### Abstract
A letter of credit (LC), also referred to as a documentary credit (DC), is a key instrument in global trade. Recently, banks have begun leveraging blockchain technology to enhance the efficiency and security of LC processes. The International Chamber of Commerce (ICC) oversees market practices related to documentary credits, including the advising bank’s role in issuing and amending LCs. Traditionally, banks retain a percentage of the LC value as security. However, blockchain technology is revolutionizing trade finance, offering digital solutions to replace outdated paper-based processes. This innovation is particularly relevant in international trade, which involves multiple stakeholders such as exporters, importers, banks, shipping companies, and customs authorities. By integrating blockchain technology, the supply chain becomes more secure and efficient, ensuring the safe execution of global trade transactions.

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#### Introduction
Documentary credit facilitates global trade by acting as a payment mechanism that mitigates risks between trading parties. It is categorized under financial law as a simple document that guarantees derivatives and insurance while reallocating risk. Over the past two decades, the rise of global value chains has transformed international trade, compelling businesses to optimize costs, accelerate delivery times, and automate information flows. Blockchain technology has emerged as a powerful tool to enhance these processes. This article explores the intersection of letters of credit and blockchain technology, highlighting their combined potential to streamline supply chain operations and improve international trade.

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#### Documentary Credit
The Uniform Customs and Practice for Documentary Credits (UCP 600) governs the use of letters of credit in global trade. Key participants in an LC transaction include the advising bank, which notifies the beneficiary or their nominated bank of the LC and any amendments. To initiate an LC, businesses must provide documents such as a trade license, import registration certificate, income tax certificate, and VAT registration. The bank reviews these documents and requires a percentage of the LC value as security. Increasingly, blockchain technology is being integrated into LC processes to enhance efficiency and security.

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#### How Blockchain Can Help
Blockchain technology is transforming trade finance by digitizing traditional processes such as issuing letters of credit, factoring, and indemnifying bills of lading. These innovations eliminate the inefficiencies of paper-based systems, enabling seamless interactions among exporters, importers, banks, shipping companies, and customs authorities. Blockchain’s decentralized and tamper-proof nature ensures transparency and trust, making it an ideal solution for international trade.

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#### Reduced Fraud
Traditional LC processes involve manual procedures, which are prone to documentary fraud and inefficiencies. Blockchain technology addresses these challenges by creating a secure, synchronized ledger accessible to all stakeholders. For example, in a typical international trade transaction, exporters, customs officials, importers, and banks can interact through a private blockchain network. This ensures that all transaction data is transparent, tamper-proof, and synchronized in real time.

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#### Submission of Documents
Blockchain simplifies the submission and verification of trade documents. Exporters can upload essential documents, such as letters of credit and bills of lading, onto a decentralized application. Once submitted, the transaction is added to the blockchain after being validated by miners. This creates a unique, tamper-proof contract stored on the ledger. Customs officials and importers can then authenticate and approve the documents, ensuring a smooth and secure transaction process. In cases of damaged goods, importers can upload indemnification documents, which are verified by insurers through the blockchain.

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#### New Trends in Contract Management
The integration of blockchain technology is revolutionizing contract management. Smart contracts, which automate processes while maintaining anonymity, and cloud-based document storage are streamlining operations. These advancements promise a future of more efficient, transparent, and automated contract management, benefiting industries worldwide.

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#### HSBC’s Experience in Bangladesh
HSBC Bangladesh has pioneered the use of blockchain technology in cross-border trade finance. According to Md Mahbub-ur Rahman, CEO of HSBC Bangladesh, blockchain offers unparalleled transparency, security, and speed. The bank recently completed the country’s first blockchain-based LC transaction, reducing processing time from 5–10 days to under 24 hours. This milestone demonstrates the transformative potential of blockchain in international trade.

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#### Conclusion
Letters of credit remain an essential tool for global trade, but traditional processes are often vulnerable to fraud and inefficiencies. Blockchain technology addresses these challenges by offering a secure, transparent, and efficient alternative. Leading banks like HSBC have already adopted blockchain for LC transactions, signaling a promising future for international trade and supply chain management. As more businesses and financial institutions embrace this technology, the global trade ecosystem will become more reliable and streamlined.

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#### References
1. Lamoureux, J.-F., & Evans, T. (2011). *Supply Chain Finance: A New Means to Support the Competitiveness and Resilience of Global Value Chains*. SSRN Electronic Journal.
2. He, X., & Tang, L. (2012). *Exploration on