Australia: World’s First Bond — on Blockchain
No it may not be in a missile-launching Aston Martin DB5, but its implication is nonetheless groundbreaking — Australia lay claim to the world’s first government bond issuance on the blockchain.
The pioneering endeavor of the World Bank and the Commonwealth Bank of Australia marks the beginning of government ventures in seeking effective use of the blockchain as a sustainable option to enhance fluency in traditional market process.
The significance of this endeavor is in the cascading migratory effect of economies and government processes towards a distributed ledger utility through the immutability of the blockchain. Where centuries-old pedigreed traditions are consciously and carefully refurbished, discarding the unnecessary multitude of intermediaries and its consequential inaccuracies.
Bond-I, or Blockchain Operated New Debt Instrument, operates via a private distributed ledger. The aptly named milestone pays homage to the famous Aussie beach, implying national pride as first to implement tech integrations into traditional systems and functions.
Created in the Innovation Lab’s Blockchain Centre of Excellence, the CBA’s private blockchain is built on the Ethereum network and runs on the Microsoft Azure cloud service. With the Ethereum Foundation’s pioneering smart contract and blockchain expertise, along with its global collaborative development community, the CBA is confident that the platform choice meets their functionality demands. The decision, however, is not indicative of exclusivity as expressed by the CBA, acknowledging the fast emergence of scalable blockchain technologies, they remain open to other blockchain options in the future.
Forecasted for 2020, Australia aims to incorporate smart contract technologies in applicable government processes including its financial sector. This forward leap into immutable and efficient technologies will facilitate a streamlining of procedural flow that values cost efficiency, time and customer satisfaction.
“Helping countries transition to technology-led development is key to our goals of reducing poverty and promoting lasting development.” — World Bank CIO Denis Robitaille
Prior to its anticipated launch, Bond-I’s security, resilience and functionality have been independently reviewed by Microsoft to ensure its trustworthiness and capability to deliver on the World Bank mandate of issuance of the “Kangaroo Bond”. Other entities have collaborated in the early stages to show support for the initiative.
The Queensland Treasury Corporation participated as both issuer and client, keeping track of all aspect of the transaction in real time, simulating the entire process from the generation of bond tender to investor’s bid and allocation. In addition, the CBA announced that during the preliminary stages, they have conducted 24 proof of concepts and simulated numerous successful blockchain transactions.
King & Wood Mallesons acted as legal advisor on the bond issuance. The Treasury Corporation of Victoria, Northern Trust and QBE are also amongst the solid supporters to the framework.
According to Reuters, World Bank bonds carry the highest AAA rating and issues about US$50bn to $60bn annually. The generated capital is allocated towards its Reconstruction and Development Division, supporting economic progress and outreach programs in developing countries.
Arunmah Oteh, Vice President and Treasurer of the World Bank announced:
“We are particularly impressed with the breath of interest from official institutions, fund managers, 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.”
“Our sincere appreciation to our pioneer blockchain bond investors, who are partnering with us on this transaction because of our common desire to strengthen markets and enable more robust issuance processes.”
Manual systems of bond issuance involve complexities due to operational roles of numerous intermediaries, causing inefficiency and sometimes risk to investors, inherent in the debt capital market. The private blockchain prototype was successful in demonstrating an efficient handling of a government instrument in a seamless and simplified single ordinance.
James Wall, Executive General Manager of IB&M International, CBA said:
“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.”
In an August 23rd press release, The World Bank announced that the two-year Bond-I bond has successfully raised A$110 million, and stated: “This marks the first time that investors have supported the World Bank’s development activities in a transaction that is fully managed using the blockchain technology.”
The unprecedented success of the blockchain-issued bond speaks volumes about the collective desire for systemic change. A synchronous solidarity for disruptive technology in which the global foundation of all political processes, economic structures, and systems of government are for each expressively — “shaken, not stirred.”
