Home Blockchain World Bank issues Swiss digital bond with settlement in wholesale CBDC

World Bank issues Swiss digital bond with settlement in wholesale CBDC

World Bank: the Washington DC-headquartered institution describes its collaboration with the Swiss National Bank (SNB) and SDX as ‘further scal[ing] efforts in the use of DLT in capital markets’; (inset) our 7 November 2023 article on the SNB announcing details of the next stage in its multi-partner ‘Project Helvetia’ initiative | Credit: World Bank

Institutions at the forefront of using distributed-ledger technology (DLT) in capital markets have notched up the latest ‘first’ in the developing arena of public sector ‘blockchain bond’ issuances.

The World Bank announced this week that it had priced the first Swiss franc (CHF) digital bond by an international issuer. It is also the first CHF digital bond by an international issuer that will settle using wholesale central bank digital currency (wCBDC) provided by the Swiss National Bank (SNB).

This seven-year CHF 200 million (about $220m/£174m) digital bond – which is the largest World Bank CHF bond issuance for 15 years – is listed on both SIX Digital Exchange (SDX) and the traditional SIX Swiss Exchange. The former is the ‘tokenised assets’ platform sibling of the latter, which is Switzerland’s principal stock exchange.

The Washington DC-headquartered World Bank issued the world’s first blockchain bond – ‘bond-i’ – in 2018. The SNB is also a pioneer through its multi-phase wCBDC initiative ‘Project Helvetia’.

In its announcement (15 May), the World Bank describes the partnership with the SNB and SDX as ‘further scal[ing] efforts in the use of DLT in capital markets’. The issuance ‘introduces the use of wCBDC by the SNB for initial settlement’, it states, adding that coupon and redemption payments will be made using tokenised Swiss francs on the SDX.

World Bank: an ‘avant-garde issuer’

“This achievement marks another significant step in the World Bank’s commitment to increasing capital markets’ efficiency through digitalisation in partnership with central banks and central securities depositories,” said World Bank vice-president and treasurer Jorge Familiar in the announcement.

The World Bank announced seven months ago that it had issued the first digital securities on a new digital financial market infrastructure DLT platform developed by Belgium-based financial services company Euroclear. This issuance raised EUR 100 million (about $107m/£87m) to support the financing of World Bank’s sustainable development activities. The new issuance “builds on our previous accomplishments with bond-i and the issuance of digitally native notes last October,” Familiar said.

“Being able to settle wholesale transactions in tokenised central bank money is a critical, foundational requirement for the adoption of a blockchain-based capital markets infrastructure,” said SIX Digital Exchange head David Newns in the same announcement.

Newns described the issuance as “taking the industry one step forward”, adding that it was “further testament of the World Bank’s pioneering innovation in the digital asset space.”

Commerzbank was sole lead manager, as well as paying and issuer agent. The bank’s global head of bonds, Marie-Claire Ouziel, hailed the digital bond issuance as “marking another triumph for the World Bank, cementing its position as an avant-garde issuer embracing innovative technologies.”

RELATED ARTICLE Swiss National Bank puts CBDC into production for bond transactions – our news story (7 November 2023) on the third stage of Project Helvetia

Project Helvetia’s third phase

Project Helvetia, which is towards the end of its third phase, has been investigating how central bank money can be used for settlement in a world where securities and other financial assets shift from centralised financial market infrastructures to decentralised or tokenised platforms for trading and post-trading activities.

The first Project Helvetia report, published in conjunction with the Bank for International Settlements (BIS) Innovation Hub, was published three-and-a-half years ago. The second phase added commercial banks to the experiment, integrated wCBDC into the core banking systems of the central bank and commercial banks and ran transactions ‘from end to end’.

Phase three, which began in December 2023 and is scheduled to run to June 2024, has seen the SNB moving its wCBDC activity from test environments into production, with banks carrying out transactions on SDX as intermediaries for issuers and investors. BIS is not involved.

Swiss municipalities have been leading the charge in issuing bonds as part of Project Helvetia. The city of Lugano issued a blockchain bond with settlement in wCBDC earlier this year, as did the city of St Gallen. These issuances followed similar moves by Kanton Basel-Stadt and by Kanton Zürich.

In joining the Basel-Stadt and Zurich cantons as issuers of digital bonds settled in Swiss franc wCBDC, Lugano stated that it ‘intends to stimulate the public sector to also innovate in the financial sector and supports this new issuance method’.

RELATED ARTICLE Blockchain bonds: digital issuance breakthroughs build buzz – a write-up of a webinar (convened by Global Government Fintech on 23 March 2023) asking: ‘Blockchain-based bonds: what potential for the public sector?’: Lugano’s deputy chief financial officer Paolo Bortolin was the opening panellist, giving the inside track on the municipality’s blockchain bond issuance

World Bank-SNB on a Promissa

The World Bank and SNB are also collaborating to develop a prototype platform for the tokenisation of financial instruments known as promissory notes.

The experimentation, which is expected to run for at least 12 months, was announced in January. It is being spearheaded by the Bank for International Settlements (BIS) Innovation Hub, alongside the World Bank and SNB. The International Monetary Fund (IMF) is participating as an observer.

The context to the initiative – known as ‘Project Promissa’ – was presented by the Switzerland-headquartered BIS Innovation Hub as having the potential to help a G20 ambition to deliver better, bigger and more effective multilateral development banks by substantially increasing their financing capacity.

‘Today, many international financial institutions (including multilateral development banks – MDBs) are partly funded by financial instruments known as promissory notes, most of which are still paper-based,’ a BIS Innovation Hub webpage for the project explains.

‘While the current system provides the operational controls for member nations to make subscription and contribution payments to institutions like the World Bank, the custody of outstanding promissory notes can be digitised to address operational challenges and enhance efficiency,’ the webpage states.