Introduction

The ITFA Digital Negotiable Instruments Initiative

An introduction to Digital Negotiable Instruments

In April 2020 the International Trade and Forfaiting Association (ITFA) released the first edition of this manual closely followed by a paper setting out the Digital Documents (dDOCs) standards which looked at how to practically implement the digitized instruments covered by the manual.

We are now publishing the second edition of the manual incorporating the dDOC specifications in one document to spread awareness of the valuable and implementable resources it contains.

In June, ITFA stated that:

“The need for more and better technology has never been clearer. The fragility of supply chains, small and medium enterprise (SME) finance, and world trade has never been more exposed. The World Trade Organization (WTO) estimates that 80 – 90% of world trade depends on trade finance, yet the best-known measure of the global funding gap developed by the Asian Development Bank of around $1.5 Trillion has persisted for a number of years (other measures put the gap much higher).”

Since then, what the United Nations is calling the “Great Disruption” has seen global gross domestic product (GDP) fall by 4.3%. The pandemic has, however, served to focus attention on the need to digitize world trade both to save costs and improve resilience. While much of the focus has been on physical manufacturing processes, leveraging new additive processes and the Internet of Things (IoT), the financial supply chain must also be digitized. This manual is a step in this direction.

Sections 2 and 3 set out how the technology works and what is required to replace paper originals with digital originals. Whilst it is recommended that the combined use of cryptography and distributed ledger technology (DLT)  or blockchain, other types of technologies can be employed too. These sections have been written by André Casterman, Founder and MD, Casterman Advisory and head of the ITFA Fintech Committee.

Appendix 1 sets out an analysis of the law by our legal advisers, Sullivan, and a proposed solution to the issues discussed.  We support this solution. ITFA continues to lobby for a change in the law in England and has had fruitful discussions with the Law Commission which is acting on a mandate from the UK Government. A copy of a letter received from the Ministry of Justice is attached in Appendix 3.

The solutions set out in Appendix 1 shows how to create functional equivalents of bills of exchange and promissory notes under the English Bills of Exchange Act 1882 (BoE 1882) in digital form. The foundation for such equivalents is explained in paragraph 9 of Appendix 1; the template wording for a digital equivalent of a promissory note is set out in Appendix 2 Part 1 and the wording for a bill of exchange in Appendix 2 Part 2. These equivalents are referred to in this paper as Electronic Payment Undertakings (ePUs). These constitute a type of Electronic Negotiable Instrument (eNI).

These functional equivalents will need to be used as, at least in the UK and despite the engagement of the UK government and the Law Commission, the legislative time needed to pass the change in law will not be available until 2022, in all likelihood.

It is worth reminding readers why it was chosen to investigate and solve the position under English law. This is simply because English law is one of the most widely used systems of law in international trade. Common law countries globally tend to have a system very similar to English law; around 40% of the world’s legal systems are based on or inspired by English law. Hence, the discussion in Appendix 1 and the solutions suggested will be of broad relevance and application. Further legal research is required to evaluate the acceptability of these digital equivalents in other jurisdictions.

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.
Get started

Download our free 2021 publication



Contents

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.
Get started

Latest News

29Sep

VIDEO: Has asset management embraced trade finance and what more is left to be done?

0 Comments

Trade Finance Global (TFG) spoke with Jason Barrass, chief commercial officer at ARC Ratings to learn more about the role… Read More →

21Sep

VIDEO: E-rules for trade explained – URDTT, eURC, and eUCP

0 Comments

During a panel at ICC Austria’s Trade Finance Week, moderator Tomasch Kubiak, policy manager at the ICC Global Banking Commission,… Read More →

01Sep

IMF to provide $2.9bn loan for defaulted Sri Lanka

0 Comments

Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a loan of about $2.9 billion. … Read More →

31Aug

A look at the economic backdrop behind mounting US-China relations

0 Comments

From former US President Donald Trump’s trade war with China to House Speaker Nancy Pelosi’s controversial visit to Taiwan in… Read More →

30Aug

Industry leaders release visual trade finance taxonomy

0 Comments

To the untrained eye, trade finance can seem like an intimidating assortment of industry terms and acronyms that were designed… Read More →

24Aug

“Africa is the future”: all eyes turn to the youngest continent as the next frontier for growth

0 Comments

With commodities like food and energy resources scarcening in the face of climate change and the Ukraine-Russia conflict, all eyes… Read More →

19Aug

China-Europe ties to be strengthened through freight train digital advancements

0 Comments

A new report on Thursday claimed that China is willing to cooperate with countries along the China-Europe Railway Express lines,… Read More →

17Aug

The acceleration towards green and renewable energy through cutting ties with Russian gas

0 Comments

Conflict with Russia has created a multitude of substantial repercussions for economies around the world, not least an ongoing disruption… Read More →

28Jul

RELEASED: Trade Finance Talks – SME trade finance: flying under the radar

0 Comments

The latest issue of TFG’s Trade Finance Talks, ‘SME trade finance: flying under the radar’ is out now!… Read More →

27Jul

Trade loans and secondary trading: BAFT v LMA

0 Comments

Trade loans are used to finance transactions involving import or export trading and reflecting different stages in the commodity trade… Read More →

About the Author

Gabrielle Ann Vilda is an author at Trade Finance Global

Back to Top