In the latest breakthrough in the fast-developing ‘blockchain bonds’ arena, Hong Kong authorities have announced a successful issuance of tokenised green bonds – the first such issuance by any government globally.
The HK$800 million (about £85m/US$102m) tokenised issuance has been hailed by public sector leaders in Hong Kong as a significant step in promoting the use of distributed-ledger technology (DLT) in the bond market.
It comes three-and-a-half months after Hong Kong’s Financial Services and the Treasury Bureau (FSTB) set out the government’s approach towards developing a ‘vibrant sector and ecosystem for virtual assets’ – a policy document that included mention of what was described as a ‘pilot project’ tokenising government green bond issuance for subscription by institutional investors.
“Hong Kong has been proactively promoting the application of innovative technologies in the financial field, and is actively exploring new concepts and technologies to enhance the efficiency, transparency and security of financial transactions,” said Government of the Hong Kong Special Administrative Region (HKSAR) of the People’s Republic of China financial secretary Paul Chan in a press release detailing the tokenised green bond issuance.
“The successful issuance marks an important milestone as it demonstrates Hong Kong’s strengths in combining bond market, green and sustainable finance as well as fintech,” Chan added. “The HKSAR government will continue to promote the innovative development of the financial market.”
The Hong Kong Monetary Authority (HKMA) has been building its experience at the confluence of blockchain-based bond issuance and green finance (the allocation of capital to economic projects that protect the environment) over the past couple of years.
The authority has worked with the Bank for International Settlements (BIS) Innovation Hub and the private sector on a blockchain-based initiative (‘Project Genesis’ – announced 18 months ago) that developed two DLT-based prototype platforms to issue retail green bonds and track their environmental impact. The Hong Kong ‘Government Green Bond Programme’ (GGBP), meanwhile, is a longer-running initiative to encourage the development of green finance.
The HKMA plans to issue a white-paper ‘in due course’ to summarise what has been learned from the tokenised green bond issuance, set out specific next steps and ‘provide a blueprint for issuing tokenised bond[s]’ in Hong Kong, according to its announcement.
“DLT holds promise for revolutionising the operation of the financial markets,” said HKMA chief executive Eddie Yue, who described the tokenised green bond issuance as “an important step forward in promoting the adoption and realisation of the full potential of DLT in the bond market”.
“Building on the experience from this issuance, the HKMA and the government will work with other stakeholders to conduct further tokenised issuances to push the boundary and encourage usage,” he added.
Digitalisation of capital markets
The HKD-denominated, one-year tokenised bond was priced at 4.05%. It was distributed by a four-bank syndicate – Bank of China (Hong Kong), Crédit Agricole CIB (Corporate & Investment Bank), Goldman Sachs and HSBC – with Bank of China and HSBC acting as investor custodians.
The HKMA’s Central Moneymarkets Unit (CMU) was the issuance’s clearing and settlement system, leveraging Goldman Sachs’ digital assets platform GS DAP. The inaugural issuance using GS DAP took place as recently as last November when the European Investment Bank (EIB) issued its first euro-denominated ‘digitally native’ bond using private blockchain technology (‘Project Venus’) – the EIB’s second fully digital bond issuance.
Goldman Sachs was among the private-sector companies involved in ‘Project Genesis 2.0’ last year (when GS DAP was described as a prototype). The US headquartered international banking giant’s head of digital assets (Asia-Pacific), Max Minton, welcomed Hong Kong’s inaugural tokenised green bond offering as “a testament to the HKMA’s leadership and innovation in green finance” and “marking another significant milestone in the digitalisation of capital markets.”
Examples of national and supranational authorities exploring and issuing bonds using blockchain are growing in number.
Just last month the Swiss city of Lugano’s public authority issued a six-year bond of up to CHF 100 million (about £88m/$108m) via blockchain in a move trumpeted as a public sector ‘first’. The World Bank launched bond-i – the world’s first bond to be created, allocated, transferred and managed through its life cycle using DLT – in 2018.
‘EIB launches ”world first” sterling-denominated digital bond on blockchain’ – our news story (2 February 2023) on the European Investment Bank launching a digital bond denominated in pound sterling using a combination of private and public blockchains (described by participants as a ‘world first’)
‘Swiss city issues blockchain bond’ – our news story (27 January 2023) on Lugano’s digital bond issuance
‘European Investment Bank issues €100m digital bond on private blockchain’ – our news story (30 November 2022) on the EIB’s ‘Project Venus’
‘Israel to pilot issuance of digital government bonds on blockchain’ – our news story (26 October 2022) on Israel’s Ministry of Finance and the Tel Aviv Stock Exchange (TASE) ‘examining the application of the issuance of digital government bonds on a blockchain infrastructure’ in explorations titled ‘Project Eden’
‘BIS and HKMA unveil green finance blockchain project’ – our news story (24 August 2021) on the HKMA and BIS Innovation Hub partnering six companies on Project Genesis
GLOBAL GOVERNMENT FINTECH WEBINAR: REGISTER NOW
‘Blockchain bonds: what potential for the public sector?’ – Global Government Fintech is organising a webinar on Thursday 23 March 2023. Confirmed speakers are: Paolo Bortolin, deputy chief financial officer – finance division, City of Lugano, Switzerland; and Nena Dokuzov, co-ordinator of blockchain technologies and head of new economy and blockchain technology project group, Ministry of Economic Development & Technology, Slovenia.