Bank of China Tokenizes $2.8 Billion Worth of Bonds

Bank of China Tokenizes $2.8 Billion Worth of Bonds

In early December 2019, the Bank of China issued $2.8 million worth of bonds via blockchain technology. China has become increasingly active with the use of blockchain, through a national digital currency, a developing security token framework, and now the issuance of nearly $3 billion worth of bonds. Will China emerge as a global leader in blockchain innovation?

Bank of China Issuing Bonds on Blockchain Explained

The Bank of China (BOC) is one of the four largest state-owned commercial banks in China. According to recent news reports in China, the bank issued $2.8 billion worth of bonds using blockchain technology on December 3rd.

The bonds were used as part of small business loans, leveraging China’s own independently developed blockchain bond issuance system. The bonds feature a two-year fixed-rate offering and a final coupon rate of 3.25%. According to the bank, the system represents “the nation’s first bookkeeping system based on blockchain technology”.

The news comes as China’s integration of blockchain technology is receiving notable attention. Governing authorities in the country are developing a number of projects featuring the emerging technology.

Most popular is the Digital Currency Electronic Payment (DCEP) infrastructure. China is developing the DCEP to serve as the country’s national digital currency. It’s pegged 1:1 to China’s national currency, the Chinese RenMinBi (RMB).

Chinese officials have argued that any digital currency ought to be issued from a central bank or government. Digital currencies or blockchain-based payment systems such as Facebook’s Libra for example, pose a threat to the sovereignty of China and other developing economies, according to the country’s officials.

Despite such remarks, China is surely aware of the benefits that blockchain technology brings to various aspects of finance. Yang Wang, a senior research fellow at the Fintech Institute of Renmin University of China, said DCEP will have the capacity to handle 220,000 transactions per second at its peak. According to Yang,

“In terms of technology, China’s digital currency excels, whether in its security level or speed, which means it will surpass competitors in user experience.”

Security Token Offerings in China Explained

Another area of finance where China is integrating blockchain includes financial securities. Weimin Guo of the BOC recently revealed news that once DCEP is rolled out and functional, China will soon after provide a legal framework for Security Token Offerings (STOs). Some have predicted DCEP will be launched within the next 1-2 months.

STOs represent the integration of traditional financial securities and blockchain technology. As opposed to the creation of a new asset type — such as a utility token — as is commonly seen with the use of blockchain in fundraising, STOs feature conventional securities. These forms of financial instruments have been regulated for a considerable time. The U.S. Securities and Exchange Commission (SEC), for example, was created in 1934.

Yet the benefits of the blockchain are anticipated to bring significant advantages to the world’s securities systems. Currently, settlements in securities transactions rely on trusted third-parties. The right blockchain can remove this need and drastically shorten settlement cycles, bringing cost saving benefits to securities transactions.

So far, STOs have been used in a number of assets to include equity, real estate, investment funds, and even fine art. Many argue that the early adopters of the new technology have anticlimactically featured low quality offerings. Still however, the majority of actors in the space are confident that the benefits embedded in the nascent industry will need only a matter of time to see legitimate adoption.

What do you think about the Bank of China issuing $2.8 billion worth of blockchain bonds? How do you see security tokens developing in China? We’d like to know what you think in the comments section below.

Image courtesy of Pixabay.