The Moscow Credit Bank has denominated the guarantee in the Chinese yuan, which is the currency most foreign trades are serviced in.
The Russian Moscow Credit Bank (MKB) has issued the very first blockchain-based bank guarantee in the Chinese yuan. The guarantee is worth over 100 million yuan, which roughly measures up to about 144,600 US dollars.
What is a bank guarantee? It is essentially a financial backstop a lending organization offers, to assure that they will step in just in case a debtor can not cover a loan they have taken. Therefore, the agreement transfers the financial responsibility for a customer’s transaction to the lending institution, in a situation when the customer can not fulfill their obligations. Bank guarantees in international trends make sure the transactions promised are carried through.
The transaction for the aforementioned blockchain-based guarantee from the Moscow Credit Bank has been performed through the Masterchain blockchain network, which is the national blockchain platform of Russia facilitating digital asset transactions between users. The bank guarantee has been agreed upon by three stakeholders, who are the principal, the beneficiary, and the guarantor bank. According to a statement released by the institution, the blockchain-based transaction has been preferred as the beneficiary neither needs to wait for a paper document, nor do they have to ask for the bank to authenticate the trade.
The MKB has further noted that the guarantee has been denominated in the currency which is linked with the importer’s contracts (yuan), and thus, for a payment under the agreement, the supplier will receive rubles from the MKB at an exchange rate all counterparties agree on.
As Natalya Bahova, the director of the Moscow Credit Bank’s International and Structured Finance Department, said: “This is the first digital bank guarantee in the market, which was issued in yuan, through the Masterchain system. Most foreign trade contracts are serviced in Chinese currency, and the demand for payments in yuan is only growing. This is a logical step for the market, we will see more examples of this in the near future. The decision will be especially relevant for large groups of companies that have many subsidiaries that accept bank guarantees in large quantities and on a regular basis.”