World Bank to Settle a $73 Million Bond on Blockchain
The World Bank has announced its intention to partner with one of Australia’s biggest bank, the Australia’s Commonwealth Bank (CommBank) to try out blockchain payments. The bank will act as the sole arranger of the bond that will be issued using the blockchain technology.
The deal is made as part of the annual $50 – $60 billion bond sales by the World Bank in managing and combating poverty rate worldwide.
In a bit to sustain development in emerging economies of the world, economists and business practitioners strongly believed that blockchain technology could make transaction processes more efficient by reducing the number of unnecessary intermediaries.
This is a pointer to the fact that this seemingly nascent technology is going mainstream.
The deal which is intended to be the world’s first public bond named “Bondi” will be created and managed using only blockchain in a $73.16 million deal.
The prototype (Bondi) which stands for “Blockchain Operated New Debt Instrument” is seen as the first step in taking bond sales away from the traditional process of bookbuild process of transacting (which involves an allocation process, extended settlements, followed by a register and then to a custodian) to faster and cheaper automation.
James Wall, the executive general manager at CBA, while speaking with Reuters, stated that this monumental leap would make bond issuance something that happens online instantaneously.
The arranger bank in a statement issued to Reuters stated that the two-year bonds is expected to yield 2.251% and would be settled by August 28, 2018.
The platform for the issuance of Bondi was developed by CommBank’s in-house blockchain lab. This new platform will drastically improve the efficiency of bond transaction between various parties comprising of sellers, buyers and banks.
The Bondi bond that will now be issued by the World Bank carries an AAA rating. With the borrowing power of the bank, it can help develop new bond markets as well as pioneering new means for selling and trading the securities.
Russia’s MTS which is a Sberbank and a telecoms operator, earlier this year claimed to issue the world first blockchain bond. The deal with MTS blockchain bond which was at 750 million roubles ($11.20 million) of 182 days paper was that it was privately placed without a broader auction.
While other prototypes such as the MTS parallel stimulation blockchain. Bondi will be the first one in which capital will be raised from public investors through a means that uses blockchain from start to finish and a legally valid bond.
This emerging trend of using blockchain to manage bonds is now gaining momentum. Just last year, a company in the UK also issued an Ethereum bond using public blockchain. Also, the Berkeley government in California is also exploring the idea of using blockchain in the issuance of municipal bonds.
With this step by the World Bank, the Australian Securities Exchange now plans to be using blockchain technology in clearing and settling equities trades from 2020 to help cut cost.