The World Bank, which issues between $50-60 billion worth of bonds each year to support economic progress, has officially released the world’s first public bond which is fully managed through the use of blockchain technology.
In August 2018, the World Bank announced that it had selected the Commonwealth Bank of Australia (CBA) to provide such management, whose means to create, allocate, and transfer the bond was restricted to the use of distributed ledger technology.
Australia is frequently tested with various financial market developments due to its sound financial infrastructure and trading volume of the Australian Dollar— a currency with one of the highest trading volumes in the world. The World Bank’s decision to work with CBA proved to be fruitful in a very short amount of time.
After a mere two-week period of market consultation, the CBA raised A$110 million (around USD$79 million) for the two-year bond.
The new bond, designated as a ‘Bond-i’ bond, stands for Blockchain Operated New Debt Instrument. The advancement is seen as a giant step from unnecessary labor-intensive processes to quicker and more cost-effective automation.
The ease of such a new process was summarized by James Wall, the executive general manager of the CBA:
[su_quote]You’re collapsing a traditional bond issuance from a manual bookbuild process and allocation process, an extended settlement then a registrar and a custodian, into something that could happen online instantaneously.[/su_quote]
It is clear that Wall isn’t the only person who thinks this way. Their success simply says otherwise.
[su_quote cite=”James Wall”]Since announcing the mandate, the interest we’ve received for bond-i has been overwhelming. It is clear the market is ready and open to the uptake of emerging technologies and sees the potential evolution of the capital markets. It has been a pleasure to work on such a ground-breaking transaction with a forward-thinking organization like the World Bank.[/su_quote]
World Bank Treasurer, Arunma Oteh, also summarized the organization’s recent success, and emphasized the readiness by many to move forward with such new technology.
[su_quote cite=”Arunma Oteh”]I am delighted that this pioneer bond transaction using the distributed ledger technology, bond-i, was extremely well received by investors. We are particularly impressed with the breath of interest from official institutions, fund managers, government institutions, and banks. We were no doubt successful in moving from concept to reality because these high-quality investors understood the value of leveraging technology for innovation in capital markets.[/su_quote]
The innovative bond is just one portion of the World Bank’s strategic focus which plans to utilize the benefits of blockchain technology in numerous ways. In June 2017, the World Bank opened a Blockchain Innovation Lab to explore the potential of such technology in industries that include government administration, supply-chain oversight, health, education, and international payments.
Their vision seems to have legislative support, since the Australian Securities Exchange intends to use distributed ledger technology to clear and settle equities trades starting in 2020.
For those interested, the Bond-i transaction details are summarized as follows:
- Issuer: World Bank (International Bank for Reconstruction and Development, IBRD)
- Issuer rating: Aaa/AAA
- Amount: AUD 110 million
- Settlement date: August 28, 2018
- Maturity date: August 28, 2020
- Coupon: 2.20% p.a. payable semi-annually in arrear
- Coupon payments: 28th February and 27th August in each year
- Re-offer price: 99.901%
- Re-offer yield: 2.251% semi-annual
- Denomination: AUD 1,000. The minimum consideration payable when issued in Australia: AUD 500,000
- ISIN: AU0000020612
- Lead manager: Commonwealth Bank of Australia
What does such an advancement say about the future of the financial transition from traditional securities to the use of distributed ledger technology? Will Australia become the first hotbed of STOs? We’d like to know what you think below.
Image courtesy of Bitcoin Exchange Guide.