Commonwealth Bank of Australia (Commonwealth Bank), Wells Fargo and Brighann Cotton said Monday they have undertaken what they called “the first global trade transaction between two independent banks combining the emerging disruptive technologies of blockchain, smart contracts and Internet of Things.”
The transaction involved a shipment of cotton from Texas, USA to Qingdao, China, using the efficiencies of a distributed ledger – Skuchain’s Brackets system – for all parties, according to Commonwealth Bank.
The trade involved an open account transaction, mirroring a Letter of Credit, executed through a collaborative workflow on a private distributed ledger between the seller (Brighann Cotton (US)); the buyer (Brighann Cotton Marketing Australia); and their respective banks (Wells Fargo and Commonwealth Bank).
The trade introduced a physical supply chain trigger to the terms of the transaction to confirm the geographic location of goods in transit before a notification is sent to allow for release of payment. The tracking feature adds a new dimension, providing all parties with greater certainty compared with traditional open account and trade instruments like Letters of Credit, which focus on documents and data, said Commonwealth Bank.
“Wells Fargo is committed to exploring emergent technologies and innovative concepts that benefit our customers. In this case, we demonstrated how a new approach to trade could benefit a joint Wells Fargo and Commonwealth Bank customer, Brighann Cotton,” said Chris Lewis, Head of International Trade Services for Wells Fargo.
“This marks another step in evaluating technology that, over time, could support the evolution of trade finance. While significant regulatory, legal and other concerns remain to be addressed with the technology, we are committed to engaging with our partners to explore potential applications within trade finance,” added Lewis.
The use of blockchain technology creates transparency between buyer and seller, a higher level of security and the ability to track a shipment in real time. The advancement from paper ledgers and manual processes to electronic trackers on a distributed ledger reduces errors and accomplishes in minutes what used to take days.