TOKYO -- Japanese banks are moving to adopt digital currency for trade settlements, as fintech startups and financial institutions partner on new systems ahead of the proposed legalization of digital trade documents.

Japan's Shoko Chukin Bank is collaborating with fintech companies DCP and Standage to develop a trade settlements system that uses tokenized deposits on the blockchain.

The system, which DCP aims to commercialize as early as fiscal 2028, will automate the filing of documents for cargo delivery and payment. It is set to enter trials this calendar year at the earliest, for use by importers in Japan.

After an overseas exporter enters trade documents in the system, an importer can pay using a tokenized deposit. Automated transactions provide the advantage of being able to operate around the clock without depending on banking hours. This will reduce the time needed to issue and obtain bills of lading by up to around five business days, according to DCP's estimate.

MUFG Bank, Sumitomo Mitsui Banking Corp. and Mizuho Bank -- Japan's three megabanks -- are working on a different system that uses a jointly issued stablecoin. Trade data platform TradeWaltz is partnering with the megabanks and NTT Data, among others, with plans to begin trials as early as November. The Financial Services Agency agreed in September to support the trials.

This project aims to digitize paperwork between exporters in Japan and banks. Banks will buy export receivables held by an exporter, using the stablecoin for the payment. Trade documents will be logged in the system, with the stablecoin payment to be made automatically upon verification. This allows the exporter to receive funds without waiting for money sent by the importer.

These pilot projects by major financial institutions come ahead of the adoption of electronic bills of lading used in international trade. Last Friday, the government submitted a bill to the legislature that would allow digitized trade documents Bills of lading are key trade documents that certify the loading or receipt of cargo. A buyer provides a bill of lading to collect cargo from a carrier. The process relies on paper documents, and delays in document delivery often cause disruptions in receipt of goods. Widespread use of electronic bills of lading could resolve this issue.

Linkage between bills of lading and payments is essential to further streamline the process. Connecting these through the blockchain would make it possible for settlements to be executed automatically when the holder of the bill of lading changes.

For exporters, linking these elements brings the benefit of lowering the risk of nonpayment, while importers will be able to collect freight earlier. Digitalization could also reduce the administrative burden on banks that facilitate such transactions.

The time required for trade transactions in Japan is 72 hours, which is long compared to 14 hours for the U.S. and 33 for the U.K.

"In addition to the geographical factor of being an island nation, [Japan has] made little progress in digitizing trade paperwork," said Ken Kawamura at TradeWaltz. He sees many opportunities to make payments more efficient, including those to cargo carriers, insurers and customs authorities.

In the pilot project being undertaken by Shoko Chukin Bank and its collaborators, digital currency payments are limited to transactions between companies and banks. Cross-border payments between banks are expected to be made in U.S. dollars or other currencies using the SWIFT global interbank communication network.