Commonwealth Bank of Australia (CBA), Wells Fargo and Brighann Cotton are in the process of conducting a letter of credit (L/C) transaction using multiple technologies, including blockchain or distributed ledger solutions.

This is not the first blockchain supported L/C transaction. Rather, it incorporates other technologies that, alongside distributed ledger solutions, could change the way documentary credit business is executed.

Transaction

This interbank trade transaction combines blockchain technology, smart contracts and the so-called internet of things (IoT).

The transaction between Brighann Cotton US and Brighann Cotton Australia involves a shipment of 88 bales of cotton already dispatched from Texas in the US that is due to land in November at Qingdao, China.

Smart contract

The L/C is being executed through a digital smart contract stored on a private distributed ledger system.

The smart contract is written in code, and is able to self-verify the terms and conditions in a transaction using data that can also trigger execution and release payment.

Internet of things

The IoT element involves devices and sensors that automatically communicate and share data, in this transaction involving a GPS device that tracks the geographic location of the goods in transit.

The transaction did not involve the R3-led consortium of over 70 of the world's biggest financial institutions - including CBA and Wells Fargo - that is focused on the application of blockchain technologies in trade finance.

Previous developments

Last month, Barclays said it had completed the first live L/C transaction using blockchain or distributed ledger technology (DC World News, 23 September 2016).

Several banks and technology partners have recently announced progress applying blockchain technology in L/C and other trade finance operations (DC World News, 22 and 30 August; 2, 1 and 16 September; 3 October 2016).

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.