The World Bank has selected the Commonwealth Bank of Australia to issue a bond using blockchain technology.
CommBank will be the sole arranger of the Kangaroo Bond, the first bond globally to be created, allocated, transferred and managed using blockchain technology.
Termed “bond-i” (Blockchain Offered New Debt Instrument) the bond has been developed with the support and input of the investor community including Northern Trust, QBE and Treasury Corporation of Victoria.
Once launched, the bond will be issued and distributed on a private Ethereum blockchain platform operated by the World Bank and CommBank in Washington and Sydney, respectively.
The World Bank and Commbank have been working together on the project for over a year and, in December 2017, CommBank said it was working with a large global issuer to facilitate the world’s first bond issued on a blockchain in 2018. Earlier in 2017 CommBank tested the technology with Queensland Treasury Corporation, which issued a prototype bond on blockchain.
At the time, CommBank’s Head of Blockchain, Innovation Labs, Sophie Gilder, said all the players in the capital markets that were shown the prototype “were really excited about the possibilities”.
The bank’s wider blockchain program targets financial markets which are rife with friction and inefficiencies, such as the bond market.
Debt capital markets today comprise numerous interconnected intermediaries and agents undertaking intersecting roles for markets to function. The distributed ledger technology has the potential to streamline processes for raising capital and trading securities, improve operational efficiencies, and enhance regulatory oversight, the bank said.
“We know blockchain has the potential to revolutionise financial services and markets, and this transaction is a significant step towards that future state,” Gilder said today.
“By working collaboratively with the World Bank, we were able to find solutions to technical and legal considerations to make this groundbreaking transaction a reality. This project further solidifies CBA’s position at the forefront of blockchain technology and we are excited to build on this, in partnership with our clients.”
Under its mandate to provide financial aid in the fight to eradicate poverty, the World Bank issues between $US50–$US60 billion annually in bonds for sustainable development. Using disruptive technologies such as blockchain could help accelerate its mission, the organisation said.
Arunma Oteh, World Bank Treasurer, said the “goal is to continue to harness innovation for the benefit of markets and our mission of ending poverty and boosting shared prosperity”.
“Since our first bond transaction in 1947, innovation has been an important hallmark of our success with leveraging capital markets for development. Given the transformative role of emerging technologies, we continue to prudently seek opportunities for us to meet investor needs as well as the needs of our clients,” Oteh said.
The blockchain platform was designed and developed by the CBA Innovation Lab’s Blockchain Centre of Excellence and Microsoft conducted an independent review of the CBA blockchain platform’s architecture, security and resilience. The law firm of King & Wood Mallesons acted as deal counsel on the bond issue and advised on the legal architecture for its implementation.