The Bank of Korea (BOK), the central bank of South Korea, is working on a proof-of-concept (POC) for a blockchain-based bonds issuance system for the region’s bond market.
World’s First Blockchain Bond
Termed the world’s first bond “created, allocated and managed using blockchain technology,” the CBA holds the distinction of being selected by the World Bank to pilot the enterprising project.
Retaining a sense of humor particular to Australians, the so-called “Kangaroo Bond” is classified as a “bond-i,” standing for Blockchain-Offered New Debt Instrument, and is wholly denominated in Australian Dollars. In addition, the bond is based on the Ethereum protocol and hosted on Microsoft’s Azure, a cloud storage service.
Bond issuance forms a large part of the World Bank, a global non-profit organization working towards mitigating health risks, diseases, and poverty in the developing world. As per estimates, over $60 million is deployed via bonds each year as part of the bank promoting and developing a sustainable, technology-driven ecosystem.
Paul Snaith from the World Bank treasury acknowledged the advantage of using blockchain technology in such a setting, highlighting its immutability, transactional speed, and instantaneous update features.
Bonds on the Blockchain
Following in the steps of the World Bank and the Commonwealth Bank of Australia which joined forces to issue Ethereum blockchain-based financial bonds dubbed the Blockchain-Offered New Debt Instrument (bond-i)bin August 2018, the Bank of Korea is looking to develop a distributed ledger technology (DLT)-powered bond issuance system for the Korean bond market.
Per sources close to the matter, the BOK and the KHNP have been searching for a suitable blockchain service provider to build the platform upon since the end of 2019, and it’s currently carrying out a proof-of-concept (PoC) for the system.
If all goes as planned, bond transactions will be recorded on the blockchain and could lay the foundation for a real-time simultaneous payment trading system. Sources say the solution will be designed in such a way that all relevant financial institutions in the region, including Korea’s financial regulator, the Fair Trade Commission (FTC) can make use of it.
Commenting on the project, an unnamed official of the BOK said (roughly translated) :
“We use government bonds to record securities and cash transactions in a distributed ledger and test whether a real-time simultaneous payment trading system is possible.”
Regulatory Clarity Important
Reportedly, South Korea boasts one of the largest bond markets in the Asian region and authorities regularly issue bonds that can be invested in by foreign investors.
While blockchain technology will undoubtedly enhance the bond issuance process by bringing more transparency to the system, sources say the BOK blockchain-based bond issuance solution may not go live until a considerable level of regulatory clarity is established.
As the Bank of Korea squashed rumors that it’s interested in developing a central bank digital currency (CBDC).
In March 2019, the BOK stated in its 2018 Annual Payment Settlement Report that CBDCs could have a negative impact on commercial banks.
Despite this, the Bank of Korea is still very much interested in developing its own CBDC, as it hinted in its 2020 monetary policy that it’s making plans to set up a digital currency task force to further look into the prospects of a CBDC.
(2020.06.04)
