Oct 24, 2016 (LBO) – Australia’s Commonwealth Bank and Wells Fargo have used blockchain, the technology behind the digital currency bitcoin that can secure financial transactions, in the first global trade transaction involving a shipment of cotton.
The shipment of cotton was from Texas to Qingdao in China — the trade involved an open account transaction, mirroring a traditional bank letter of credit, between the seller, Brighann Cotton of the US, the buyer, Brighann Cotton Marketing Australia, and their banks, Wells Fargo and Commonwealth Bank.
A letter of credit involves a guarantee from a bank that a seller will receive payment from a buyer once certain conditions are met, such as proof that they have shipped the goods.
Commonwealth Bank says the use of blockchain technology, smart contracts and the Internet of Things creates greater transparency between buyer and seller, a higher level of security and the ability to track a shipment in real-time, Business Insider reported.
Existing trade finance processes are ripe for disruption, Michael Eidel, executive general manager of the Commonwealth Bank’s cash-flow and transaction services, said commenting on the transaction.
“This proof of concept demonstrates how companies around the world could benefit from these (blockchain, smart contract, Internet of Things) emerging technologies.”
According to Cameron Austin, general manager of Brighann Marketing, the combination of emerging technologies could eliminate many inefficiencies in international trade.
“The benefits of lower costs and improvements to security through reduction of errors, risk and time, enable a company to achieve greater efficiency and have more predictable working capital,” he says.
The key to blockchain is a digital ledger that can only be changed if all parties — such as the buyer, seller and the banks in the Commonwealth’s transaction — agree.
So instead of everyone keeping their own spreadsheets, blockchain is a secure way for all to keep track of a sale.