WORLD BANK TO ISSUE BONDS VIA BLOCKCHAIN: The World Bank has partnered with the Commonwealth Bank of Australia (CBA) to issue a bond over a private blockchain that was built on top of the Ethereum network, and then checked by Microsoft for its architecture, security, and resilience. The Kangaroo bond, dubbed Blockchain Offered New Debt Instrument (bond-i), was also developed with support from the investor community, including Northern Trust, QBE, and the Treasury Corporation of Victoria. The CBA claims this is the first bond globally to be created, allocated, transferred, and managed using blockchain. It will be operated by the World Bank in Washington, DC and the CBA in Sydney. The aim of bond-i is to reduce poverty and promote sustainable development, an area to which the World Bank commits up to $60 billion in bonds annually.
The CBA announced it was building a blockchain platform for bond issuance in December 2017. The CBA had completed 24 proofs of concept (POCs) and trials related to blockchain use cases at the time, suggesting that it has quite a bit of experience in the field. That likely makes it a good partner for an organization as big as the World Bank, as its knowledge of this nascent technology will be helpful in ensuring the venture remains on track. Debt capital markets include many intermediaries and agents with intersecting roles and processes, and blockchain has the potential to streamline these processes, improve operational efficiencies, and enhance regulatory oversight, according to the CBA. However, implementing blockchain solutions is difficult, so having a partner like CBA with the proper experience is paramount.
We have seen some blockchain projects going live, but not to the size of this one. While some banks have launched their blockchain platforms, or are in piloting stages, we have not yet seen a live project with such a large pool of money behind it. Although it is unclear how much of the World Bank’s annual commitment will be dedicated to bond-i, if the venture is successful, we could see the organization choosing to allocate more funds to it. This is an ongoing project, and it seems likely that the World Bank will continue to use bond-i over time, showing that financial institutions (FIs) see blockchain technology as a sustainable option.