As awareness increases of the technology known as blockchain, which lies behind such digital currencies as bitcoin, competition is rising around the world to explore the characteristics and capabilities of blockchain in order to devise a myriad of other applications of the technology. The banking and finance industry is at the forefront of investigating, devising and creating such new applications because the security characteristics of blockchain present ideal possibilities that the industry can utilise and leverage off.
As financial institutions around the world compete in their respective endeavours to devise ways to apply blockchain technologies within the banking and finance industry, Commonwealth Bank of Australia (CBA) has successfully issued a cryptobond (effectively, a working prototype of a digital bond) for Queensland Treasury Corporation (QTC). This appears to be the world’s first blockchain bond issuance by a government entity and represents a very significant breakthrough in the application of blockchain technologies.
Applying CBA’s capital markets blockchain platform, QTC acted as both issuer and investor for the bond issuance in order to be able to test the entire bond issuance process end-to-end. By doing so, QTC was able to generate a bond tender, view investor bids in real time, conduct investment allocation to completion, and settle with investors instantly.
CBA’s blockchain platform acts as both a bond register and a payments platform. While this bond is non-tradable and does not carry any debt obligation (as it is at a working prototype stage), the QTC bond issuance demonstrates that this technology has the ability to provide significant simplification benefits to bond issuance processes. The efficiency outcomes will benefit not just issuers but also investors and other market participants. And benefits are expected to also be gained in future bond issuances through CBA’s technology in terms of increased transparency of transaction processes, as well as lower costs and lower bond issuance-related risk.
Within CBA, there is a team dedicated to developments around blockchain which continues to work on this technology in collaboration with the Debt Markets team within CBA’s Institutional Banking and Markets. CBA has the benefit also of direct collaboration with a range of clients, including QTC and other government treasury partners.
We should see this area of the application of blockchain technology become very active in the not-too-distant future.