World Bank and Commonwealth Bank Team Up to Issue Cryptobond
Australian financial giant Commonwealth Bank will create and deliver a blockchain-based bond in conjunction with the World Bank, a first for both organizations.
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‘bond-i’ to Be Built on Ethereum
The World Bank selected Commonwealth Bank (CBA) to create and manage the new bond, which will be built on a private version of Ethereum, per a press release. Termed “bond-i,” or Blockchain Offered New Debt Instrument, the name also refers to the famous Bondi Beach in Sydney. According to CBA, the new bond will be issued and distributed on a blockchain platform jointly operated by the World Bank and CBA. It was developed by the CBA Innovation Lab’s Blockchain Centre of Excellence in Sydney and an independent technical review was conducted by Microsoft.
James Wall, Executive General Manager of Institutional Banking & Markets International at CBA, said in a statement that:
“We believe that this transaction will be groundbreaking as a demonstration of how blockchain technology can act as a facilitating platform for different participants. We are delighted to have partnered with the World Bank and fully support its vision of making innovative use of technology such as blockchain to increase the efficiency of financing solutions to better achieve their goal to end extreme poverty.”
In January of 2017, CBA’s Blockchain Centre of Excellence had created a prototype cryptobond for the Queensland Treasury Organization (QTO), which CBA claimed was the first blockchain bond issuance by a government entity anywhere in the world. In that instance, QTO had used CBA’s private blockchain platform to generate a bond tender, view investor bids in real time, finalize investment allocation, and settle instantly with investors. It seems likely that a similar system will be used with the bond-i, except it will be live.
Finance Industry Experimenting with Blockchain Integration
The World Bank issues between $50-60 billion USD worth of bonds annually to countries for the purpose of economic development, and CBA is their lead manager for bond issuances in Australia and New Zealand. They and other financial institutions see blockchain as a way to reduce costs and enhance regulatory oversight for their operations. A June report by market intelligence firm Greenwich Associates found that Investment by American financial services firms in blockchain, or “distributed ledger technology” as it’s also known, increased by 67 percent in 2017 from the previous year, up to a total of $1.7 billion USD.
But widespread adoption of blockchain in finance has proved elusive, due to technical challenges and lack of use cases. Fortune reported in June that startup R3, which has been building a blockchain system called Corda with a consortium of big banks since 2014, missed revenue goals and has been struggling to find a sustainable business model. R3 denied the report.
Cryptocurrencies are also being looked at by the financial industry. Having seen the success of crypto exchanges like Binance, traditional stock exchanges like Nasdaq, Swiss stock exchange SIX, and more recently, the New York Stock Exchange have been examining cryptocurrencies, with an eye towards possibly integrating them into their operations.
Have your say. Will cryptobonds be the norm in the future? Let us know what you think in the comments below.
Images via Oxfam International, Pixabay