The World Bank is to settle its very first public blockchain bond next week.
The instruction will see the bank use blockchain technology to carry out the entire issuance process, removing any manual involvement.
Priced at AU$100m (£56.65m), the so-called Bondi (standing for Blockchain Operated New Debt Instrument) security will be managed by the Commonwealth of Australia Bank. The short-term bond is priced to yield 2.251 per cent after two years.
“We believe that this transaction will be groundbreaking as a demonstration of how blockchain technology can act as a facilitating platform for different participants," said James Wall, MD of the Financial Institutions Group at the bank.
The bank maintains a centre at the Sydney Innovation Labs, where last year it managed the first prototype blockchain bond issued by a government entity, Queensland Treasury Corporation. Using blockchain, it could generate a bond tender, view investor bids in real time, finalise investment allocation and immediately settle with investors.
Wall told Reuters earlier this month: “You’re collapsing a traditional bond issuance from a manual bookbuild process and allocation process, an extended settlement then a registrar and a custodian, into something that could happen online instantaneously.”
The institutions will use an Ethereum blockchain for the project. Ethereum is open source, and employs an international community of developers to maintain the technology. Santander and ING Bank are amongst the members of the Ethereum Alliance that intends deliver a uniform blockchain standard.
The World Bank issues AAA-rated bonds to foster sustainable development and establish alternative bond markets, issuing $50bn of securities annually in an effort to reduce international poverty.
World Bank chief information officer Denis Robitaille said: “Helping countries transition to technology-led development is key to our goals of reducing poverty and promoting lasting development. This is at the heart of the World Bank’s Innovation Lab - and this pioneering bond is a milestone in our efforts to learn how we can advise our client countries on the opportunities and risk that disruptive technologies offer as we strive to achieve the sustainable development goals.”
Australia is a well-established location for financial innovation, given the popularity of the currency with traders.