The World Bank is using blockchain technology for the first time to sell a bond, in a sign that the technology, whose advocates say has the potential to disrupt capital markets, is attracting greater interest.
The Washington-based lender has mandated Commonwealth Bank of Australia to arrange the sale of the bond, which will be known as Bondi, or Blockchain Offered New Debt Instrument. It is also a nod to the famous Bondi Beach in CBA’s hometown of Sydney.
“We believe that emerging technologies equally offer transformative yet prudent possibilities for us to continue to innovate, respond to investor needs and strengthen markets,” said Arunma Oteh, World Bank treasurer.
Investor interest in the bond has been “strong,” said the World Bank, which is aiming to raise about A$100m from the sale later this month.
The merits of the new technology include the ability to reduce the time it takes to settle such securities from five days to a few seconds. But at the same time, the potential for full transparency and a reduction of fees that should eventually become part of the attraction of such distributed ledger technology has yet to be realised.
Blockchain technology is expected by its advocates to eventually upend institutions that have provided the traditional infrastructure of the capital markets, including depository institutions, clearing entities, custodians and other intermediaries. But that is expected to take a few years and involve regulatory and legal changes.
“We expect to see other issuers come to market soon,” said Paul Snaith, the World Bank’s manager of treasury asset and liability operations. “Already some central banks are assessing how they can use blockchain for settling transactions.”