It looks like the Wold Bank is making a move into the world of blockchain bonds. The established financial system has been very critical of cryptocurrencies, but the backbone of Bitcoin seems to be more captivating to the world’s largest financial institutions. The World Bank just announced they would be working with Commonwealth Bank of Australia (CBA) to issue a new class of blockchain bonds.
The new bonds will be called bond-i’s, which stands for Blockchain Operated New Debt Instrument. It also appears to be a reference to Bondi Beach; a popular Sydney beach. CBA will be the sole arranger of bond-i debt issuance, which may be in excess of $50 billion USD per year. The World Bank has not disclosed the timeframe they will pursue, but the platform that CBA has created is fully developed, and could begin new issuance at anytime.
Denis Robitaille, World Bank CIO, had this to say about the new program, “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.”
CBA has been an innovator in developing blockchain technology, which may be why the World Bank elected to give the bond-i program to them. The bonds that will be issued on the bond-i platform will be a part of the World Bank’s annual fundraising program to eliminate poverty around the world, and may grow into other markets as the platform proves itself in the real world.
Blockchain Bonds fit CBA’s Innovative Stance
CBA has been quick to prioritize blockchain development. The bond-i program was designed by CBA’s in-house blockchain lab, which recently deployed another blockchain platform to facilitate a shipment of almonds from Australia to Germany. CBA has already involved QBE Insurance,Northern Trust, and the Treasury Corporation of Victoria in the bond-i program. There will probably be more banks that become interested in this technology, now that the World Bank has endorsed the use of blockchain bonds.
Unlike cryptocurrencies, which remain volatile, blockchain looks like it is being adopted at the highest levels of finance. CBA’s trial run of a blockchain-based logistics platform was successful, and was able to connect numerous parties on a single platform. Blockchain has the ability to collect data from numerous inputs, like IoT devices and scanning equipment, and deliver it onto a shared ledger that can’t be compromised easily.
Blockchain bonds are a novel use for the technology, and could speed the adoption of blockchain technology in the financial community. JP Morgan CEO, Jamie Dimon, has been a harsh critic of cryptocurrencies. This stance doesn’t seem to affect his optimism for blockchain, which he sees a a vital part of JP Morgan’s operations in the future.
After going on the record numerous times with harsh words as Bitcoin rose in price last year, Jamie Dimon called blockchain, “the biggest potential disruption to our business,” in a public address last week. A report from JP Morgan that was published in February of this year was more direct, and called cryptos the, “face of the innovative maelstrom around the blockchain technology.”
Numerous Nexus Points are Emerging
The global debt market is enormous. If blockchain bonds catch on as a new way for companies and governments to issue debt, the knock-on effects in the banking sector could be substantial. In addition to making issuance more efficient, it would be much easier to establish chain-of-custody, and avoid any problems with insufficient collateral in the repo market.
Blockchain bonds could also emerge as an ultra-short-term debt instrument, as their creation and issuance is far more direct than a traditional note or bond. Rapid access to capital could change the nature of borrowing, and vastly reduce the role of money-center banks in the global economy. Cryptocurrencies don’t seem to be a part of the World Bank’s vision for now, but that could change as people become more aware of the inefficiencies that exist in the fiat system.