The central banks and regulators also said they would collaborate on other financial technology-related initiatives.

Singapore and Hong Kong’s de facto central banks plan to use the technology underpinning bitcoin to power a new trade financing platform.

The Monetary Authority of Singapore and the Hong Kong Monetary Authority today signed an agreement committing to work together to build a “trade finance cross-border infrastructure” based on blockchain, the technology that facilitates bitcoin and other crypto-currency transactions. 

Trade finance relates to the process of financing activities related to commerce and international trade. This often encompasses lending, issuing letters of credit, factoring, export credit and insurance. There are typically numerous parties involved in trade financing, which can hinder transaction speeds.

But blockchain could help streamline these often cumbersome processes. 

A blockchain is a virtual distributed ledger of transactions shared peer-to-peer that can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. 

The technology has long been slated as having the inherent ability to facilitate faster payments because its decentralised make-up removes the need for third-party authorisation by allowing all participants to simultaneously monitor every stage of a transaction. No changes can be made without permission from every participant.

The city-states’ central banks, which also act as regulators, did not give specific details about the blockchain initiative, but said more details would be announced next month. 

Aside from this, the MAS and the HKMA agreed to collaborate on “other fintech initiatives”, and to facilitate referrals of “innovative” businesses to one another. They will also share information and exchange expertise to drive financial innovation in Singapore and Hong Kong, the MAS has said. 

“This is one of our more significant fintech cooperation agreements, given the extensive financial and trade linkages between Singapore and Hong Kong,” Ravi Menon, managing director of the MAS, said. “We are especially pleased that we have a live project to enhance the trade finance corridor between the two financial centres.”