The Commonwealth Bank of Australia (CBA) and World Bank’s International Bank for Reconstruction and Development have announced the creation of a process to record secondary bond trading on distributed ledgers using blockchain.
The institutions announced their successful recording of a secondary bond transaction for bond-i, a blockchain-operated debt instrument. This is the first bond to have both issuance and trading recorded on a blockchain platform.
CBA has been exploring potential applications of blockchain technology since 2016. The bank has since completed more than 20 blockchain pilots across a range of industries in collaboration with clients, fintechs, banks and government.
Step forward
World Bank Vice President and Treasurer Jingdong Hua said: “Enabling secondary trading recorded on the blockchain is a tremendous step forward towards enabling capital markets to leverage distributed ledger technologies for faster, more efficient, and more secure transactions.
“It speaks to the innovation and commitment of all our partners, including investors, that we were able to achieve this together.”
The World Bank considers blockchain an integral part of its future strategy. It launched a Blockchain Innovation Lab in 2017, to understand the impact of blockchain and other disruptive technologies in areas such as land administration, supply chain management, health, education, cross-border payments, and carbon market trading. Between US$50-US$60 billion annually is issued in bonds for sustainable development as part of its mandate to reduce poverty and promote lasting development.
The international financial institution World Bank was set up in 1944. Risk management products, advisory services, loans, and guarantees are offered to middle-income and other creditworthy nations through World Bank. Supporting sustainable development goals, ending extreme poverty, and promoting shared prosperity are purposes behind these offerings.
Positive feedback for bond-i
In August 2018, the World Bank mandated CBA as the sole arranger of the bond-i, which is designed to test how blockchain technology might improve decades-old bond sales practices. During the same month, the World Bank raised $110 million via the bond-i blockchain platform, which was built and developed by the CBA Blockchain Center of Excellence. The platform is built on top of the ethereum network, and was reviewed by Microsoft regarding its architecture, security and resilience.
Sophie Gilder, Head of Experimentation & Commercialisation, CBA Innovation Labs said: “Since issuing bond-i in August last year, the positive feedback and interest from the technology and financial sector community globally has been extraordinary.
“There is a growing recognition that blockchain technology can deliver a superior digital market for raising capital and then managing and trading securities, so we are working with our strategic partners to realise that vision. Blockchain has the potential to streamline processes for raising capital and trading securities, improve operational efficiencies, and enhance regulatory oversight.
“We have nodes deployed in Sydney and in Washington, and between these two nodes we can deploy smart contracts such that we can automate actions between these two institutions without any manual intervention whatsoever.”
Other financial institutions across the globe have been recently testing blockchain-based systems for payments, including Santander, Societe Generale.