22. Trade Finance & Supply Chain

MIT 15.S12 Blockchain and Money, Fall 2018
Instructor: Prof. Gary Gensler
View the complete course: ocw.mit.edu/15...
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Prof. Gensler explores trade finance, its attributes, and the significant activity of blockchain technology behind it.
License: Creative Commons BY-NC-SA
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[@johnmcquiston2292]

I’ve worked in trade and SCF for the past 25 years with two of the largest American banks, both in NYC and London. I have to admit, both the professor and the students have achieved an impressive and nuanced understanding of one of the more esoteric products in banking. Separately, SCF in particular is one of the more “virtuous” products offered by banks where, if done properly, benefits accrue to all parties to the transaction. If you’re a banking geek like me, this is a big, complex and fascinating (but little known) corner of banking. And we as an industry need younger people taking an interest in this solution set. And it’s a corner of banking where you are really offering true value to your corporate, FI and commercial banking customers. I caught the trade bug after my MBA in 1998 and haven’t lost interest in it yet! Thanks to MIT for putting this out there and well done here folks.

[@ace11235]

Hi John. Can you please share some references on the day-to-day operations of Trade Finance depts. in banks including SCF? Thanks!

[@McSnacks930]

Do you have any resources of what to read or look into? I got the trade bug also but want to keep diving in as I’m just starting

[@johnmcquiston1546]

You’re both asking good but hard questions. The best answers I can give is to read publications like Global Trade Review (industry periodicals of a similar nature - but GTR is the best in breed). Now is the really turgid part that’s more of a boring read - and this is the real nitty gritty: the UCP-500 or 600 (for documentary trade). This is the actual source material for the worldwide-recognized rules governing the issuance, receipt, financing, acceptance, examination and confirmation of letters of credit. For Standby LC’s, you’d review the ISP-98. And for the non-US version of an SBLC (known as a “Bank Guarantee”) you’d look at something called the URDG (Uniform Rules for Demand Guarantees). These are all three effectively akin to reading a cross between government laws and legislation and an encyclopedia. So real boring. But skim the rules. Then I’d recommend going to the International Chamber of Commerce (“the ICC”) website and read the topical issues that they periodically publish. And last but by far not least, go to the BAFT website and read everything there you can get through. BAFT stands for the “Bankers Association for Finance and Trade.” Then there is a WSJ journalist who has written some great books on global trade (albeit more from a logistics perspective): Lori-Ann Larocco. Lastly, I’d recommend going back in time and pulling up any article written in the past 5 years by Julie Steinberg, who is probably the best journalist on the topic of trade and SCF. Both she and Lori are great writers and explain this esoteric and technical world in simple and understandable terms. Then follow the links that come up on Google or KZbin or Amazon. One other point: if this is a career you want to pursue, the SCF route is where most of the growth and dynamism is happening. Hope that’s helpful.

[@Khan-At-Large]

Hello John, I wanted to know if we can get unsecured trade finance for import transactions (by collateralizing the import cargo itself) ???

[@teklegirmay-kw8kl]

thank you so much for your course this best for me at the import trade

[@oswaldkuyler]

This lecturer is amazing, his way of dealing with the questions is priceless :)

[@theindubitable]

Yes, he is really good. But Gary has now joined the dark side I'm afraid. He is the the SEC Chair and are doing some really shady stuff right now.

[@andso7068]

@@theindubitable Such as?

[@JohnSmith-bm6zg]

The British guy is a real troll lol

[@MidnightV6]

@@andso7068he knows the game too well and now he now makes rules for the game. he might not be doing insider trading, but I’m pretty sure he is getting many large “favors” through other means from companies he’s helped with his power or knowledge

[@robertwheeler7063]

Xinfin XDC token

[@projectlinkservices7849]

Yup

[@quietone1201]

Super bullish.

[@rp3875]

Thank you MIT for your generosity. This entire course has been incredibly useful to me.

[@valbeck]

Truly! We can’t thank you enough. This course has been something extraordinary!

[@dailymanager7133]

VECHAIN for SUPPLY CHAIN Crypto is everywhere

[@projectlinkservices7849]

Yup

[@adop274]

I think this was one of the most interesting lectures in the whole course. A lot of ideas were presented with the students debating, I think this will be the direction of blockchain use with NFTs. Tools to use for company efficiency and customer trust.

[@DanMcB1]

This week I’m conversation I used…immutable, time stamped transaction ledger, medium of exchange, unit of account, and store of value. MIT, Thank you very much for this.

[@simonbrown9695]

this guy is so slever patient......i left school at 15 and find myself watching this to educate myselfenjoyed the whole 22 videos....im just shocked that these are meant to be the best studentas in the world james has such a closed mind to be at MIT.....by class 22 surely he can see both advantages in financing and the supply chains coffe neaz is a perfect example of a necassary blockchain...i wonder what job he got in the end

[@ethanf.6848]

Agreed. Some of the students are basket cases, asking idiotic questions, keeps interrupting the professor, not framing their questions into context and the list goes on. Get the hint when the professor tells you "its a good question" once too many times and the whole point of the lecture is on critical thinking.

[@agaborys3512]

They lack the broader view, like most people do in life.

[@onetwothree4148]

I disagree. The professor didn't really answer his question. The main benefit of blockchain is decentralized permissions. Blockchain doesn't do anything unique within a central organization. The benefit comes from decentralization.

[@fksons4161]

This is a fantastic lecture on Trade finance.

[@sriramanandakrishnan8955]

Very well done, Sir. I always find supply chain as a proper use case for block chain and this lecture proved that I am at least on the right track

[@bammbamm3148]

Right up XinFin's alley $XDC

[@quietone1201]

Right on!

[@ndrslmpk2634]

Why are there no public-permissionless initiatives tryining to solve this issue? Instead I just see banks being involved in optimizing trade finance. Couldn't using blockchains like Ethereum being a base-layer for direct businesses transaction between importer and exporter with carriers as transport facilitators? Looking forward your responses!

[@arrowb3408]

Hahaha... only 3 comments out of 122 visitors. Are we on the top of Mt. Everlast, eih? Coming here for downloading free audio podcast..........................STF..............................

[@snowstormtamang2914]

K

[@ballack39]

My Gary Gensler, do you really believe XRP is a security? 👀

[@VasVordokas]

Itd be interesting to see if the 15% of LC’s as a total trade finance include standby LC’s, and embedded LC facilities within working capital syndicate loans. Of course and to your point the growth of MNC’s and globalization has provided such large structured facilities to only larger companies. Most small to mid size companies sell on open account and have credit insurance which for their size and scale is much cheaper trade finance solution.

[@johnmcquiston1546]

Great question. Answer is that it would look very different. The 70% to 15% is strictly doc trade. Sblcs and BG’s grow at the rate of the global economy (more or less), but in notional dollar terms in outstanding instruments exceed doc trade by between 5-7x’s.

[@berajpatel8081]

Raises the question customer interfaces, legacy of data processing & how this would eventually change the hardware we use to establish recognition / execution !

[@a.r.prabhu2318]

TReDs does not use Blockchain as far as I know

[@simonbrown9695]

incredible thanks mit im british but married to american was a repubklican this guy swinging me....feel usa finances safe in his hands grear guy and teacher

[@brainstormingsharing1309]

Absolutely well done and definitely keep it up!!! 👍👍👍👍👍

[@Infinitenothingness180]

I cant stress the value I got from this class.. Thank you Prof Gensler and MIT. !

[@SomeoneCalledJoshua]

I feel exactly the same way. Even in 2021 this is a hidden gem of a course. What a refreshment from all the buzzy bullshit around this interesting topic.

[@Megabeat30]

Lot of this info is incorrect … you’d confirm BoLs thru order, po, p/u, and registration # come on Gary

[@robertwnorrisii9143]

Professor Gensler, Mr. Mike Bloomberg won't let me access industry-standard professional services despite my business's countless accreditation affiliations. Sincerely, R.W.N II

[@chd10]

About 5 minutes in one of the students mentions a study by the Asian Development bank stating that 50% of Trade Finance credit applications made by SMBs/SMEs are declined vs. 7% for larger companies. Does anyone know where to find this report?

[@aminkazemzade3118]

this is the end of 2023 and you saw the power of Bitcoin in these years.ready for next hype :)

[@ssshhhbequiet1451]

XDC

[@quietone1201]

Gary knows

[@lawniczakjohn]

I don’t know enough about supply chain economics to form an educated opinion, but it will be interesting to see how this field evolves with the blockchain. 49:47 is a great comment.

[@clivend]

the more I go through this course the more I see potential for new tech like blockchain to take over. but how can an average citizen invest in it? hoping to get the right token between eth, ada, polygon and the rest?

[@SubtleReed]

When bitcoin sky rockets you'll have all these bitcoins but no all these bitcoins but no product to buy

[@quietone1201]

Xdc network. Super bullish on xdc!!

[@jayusa17]

I wish I could see the names of the folks asking questions...

[@campusseoul]

Trade Finance is multi party and document intensive.

[@frankpatron868]

Gradr fimace

[@jordaneil]

save us from the wild west of crypto gary!

[@tun10011]

learnt so much other than blockchain from these lectures

[@McSnacks930]

James is the future EU Bank Chief I bet

[@sawanpreetsingh2851]

Nice

[@bafanamotheogane3225]

What's the name of the last song?

[@adamb2220]

Frustrating to hear students at the most prestigious university in the world miss the point so much about using blockchain for supply chain

[@nicholashughes7226]

Earlier in the class the teacher was getting pissed off because a bunch of them weren't even paying attention and were scrolling through facebook.

[@vikaasb2016]

Very informative ❤!

[@Dannydrinkbottom]

Very good Qs and As were brought up by the students...

[@philipmulville8218]

Brilliant lecture and discussion.

[@cvvitale4813]

This guy is growing on me 👍👌

[@krihanek117]

At least one person that fails to recognize the large problem of fraudulent/fake/counterfeit products.

[@bradleyg1970]

VeChain solves for this and has the most partners.

[@onetwothree4148]

No, they merely pointed out that a central authority has to confirm and publish authenticity anyway, and it's cheaper and easier to do that with a centralized database. Using blockchain doesn't magically make that problem go away and it does nothing that a database couldn't do for privacy so long as you're dealing with a centralized blockchain (like VET, for example). The benefit of blockchains and permissionless authentication across companies, not vertically within hierarchical organizations.

[@bradleyg1970]

@@onetwothree4148 a centralized database is not immutable and far less secure.

[@rajivvij3505]

thanks. very nice.

[@Dude-1689]

Amazing ❤

[@goldensnitch1614]

13:40

[@Sage16226]

FTX baby

[@shreekantgaikwad5601]

👍