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World Bank issues blockchain bond, trimming capital costs

Bitcoin.com buttons are seen at the Consensus 2018 blockchain conference in New York City. Distributed ledger technology is making its way into finance beyond cryptocurrencies.   © Reuters

TOKYO — The World Bank is issuing what it describes as the first public bond fully underpinned by blockchain — the technology behind cryptocurrencies like bitcoin — which holds the promise of reducing the cost of raising debt capital.

The 110 million Australian dollar ($80.4 million) offer was sold to Australian financial institutions.

The World Bank called the bond, dubbed “bond-i,” “the world’s first bond to be created, allocated, transferred and managed through its life cycle using distributed ledger technology.”

“The interest we’ve received for bond-i has been overwhelming,” said James Wall, general manager of institutional banking at Commonwealth Bank of Australia, which arranged the issue. Investors with CBA accounts will be able to trade the blockchain bond in the secondary market. The settlement date is Tuesday.

Blockchain bonds have the potential to make issuing and trading debt less cumbersome. A typical corporate bond float involves many intermediaries, from the lead managers who underwrite the offer to the central securities depositories that record bond ownership, adding layers of expense for issuers.

Distributed ledgers, or blockchains, can record transactions among multiple parties in a way that all sides can verify. Applied to bond issuance and trading, this could streamline the process of interest payments and redemptions, eventually making today’s central clearinghouses unnecessary.

“In addition to simplifying bond administration, the market can be made more efficient under the long run,” said Yoshiyuki Arima, Japan’s representative at the World Bank.

The World Bank issues $50 billion to $60 billion in bonds yearly to fund aid for developing nations. Blockchain bonds are part of the bank’s focus on turning “disruptive technologies” into new fundraising models for countries with underdeveloped traditional capital markets.

In 2000, the World Bank debuted its first internet-issued and -traded e-bond, and made other initiatives to streamline debt markets. But the e-bonds, which are sold directly to buyers, have proved unable to replace the long-standing practice of issuing and buying bonds through brokerages.

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