The Commonwealth Bank and Wells Fargo have announced their effort to use the blockchain for a shipment of cotton from Texas to Qingdao in China. This is the first time that the technology behind bitcoin has been applied in a deal facilitated by an Australian bank to sell cotton to China.
Australian cotton trader Brighann Cotton Marketing bought the shipment bound for the port city Qingdao from U.S. division Brighann Cotton in Texas. The total price of the blockchain trade for 88 bales made up $35,000.
Business Insider reports that 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 is bank’s guarantee of a correct transaction if all necessary conditions are met.
Commonwealth Bank has appreciated the potential of the blockchain and says that the technology along with smart contracts and the Internet of Things allow greater transparency between buyer and seller, a higher level of security and the ability to track a shipment in real-time.
Chris Lewis, head of international trade services for Wells Fargo, underlines that the blockchain technology is still in process of examination and analysis. However, he says Wells Fargo will continue studying the technology.
“In this case, we demonstrated how a new approach to trade could benefit a joint Wells Fargo and Commonwealth Bank customer, Brighann Cotton,” he says. “This marks another step in evaluating technology that, over time, could support the evolution of trade finance.”
According to Michael Eidel, executive general manager of the Commonwealth Bank’s cash-flow and transaction services, traditional trade finance processes are ripe for disruption.
“This proof of concept demonstrates how companies around the world could benefit from these (blockchain, smart contract, Internet of Things) emerging technologies. We strive to stay at the forefront of disruptive technologies to understand how they can be used to enable greater efficiencies and solve the real world challenges our customers face”, he says. “The interplay between blockchain, smart contracts and the Internet of Things is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain.”
Cameron Austin, general manager of Brighann Marketing, says that open-mindedness to different emerging technologies can take the international trade to the new higher level.
“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.