Commonwealth Bank of Australia (CBA) have partnered with Queensland Treasury Corporation (QTC) to announce a world-first, a virtual bond. Continuing on from their previous endeavours, they plan to introduce a blockchain system for debt capital markets.
CBA issued what they called a ‘cryptobond’, or virtual ledger system, with QTC using their capital markets blockchain platform. This will be the first time that a blockchain bond will be issued by a government entity worldwide.
Created through a digital format using smart contract technology, the bond will automatically issue the investor with coupons or interest payments when they are due.
George Confos, Executive General Manager of Business and Corporate Finance for CBA, believes that blockchain will soon change the capital markets due to the productivity and clarity that the technology provides.
“Our proof-of-concept demonstrates blockchain is capable of delivering efficiency to issuers, investors and other market participants. Blockchain makes it possible to increase efficiency and transparency, which will redefine how capital markets operate,” he said in a CBA statement.
The benefits of using blockchain technology are numerous. One crucial example is the fact that deals cannot be interfered with due to the encryptions of the digital-ledger technology; the conditions of the contract will be maintained ensuring that all parties are working with the same synchronised version.
For QTC, this is a step in the right direction for Australian governments as they welcome and harness the future technology. QTC have set the example by using it to create bonds, track investor bids in real time and settle deals with investors.
Grant Bush, Deputy CEO and Managing Director of Funding and Markets at QTC, stated they are looking at the long-term effects that this technology may have on stakeholders.
“QTC is collaborating with CBA to experience the technology first-hand through a working bond prototype. For QTC, we are looking at the long-term implications of the technology as a semi-government issuer.
“The collaboration with CBA and other stakeholders involved is proving to be extremely useful as we can understand and think through applications along the way based on the prototype,” he said.
The blockchain technology is only a prototype at this stage and was developed in CBA’s own innovation labs. After they previously announced using blockchain technology to complete trade deals with Wells Fargo, this signifies their intent to continue to develop blockchain for the banking sector.
The banking behemoths completed a cotton trade deal in early November, where the transactions were completed digitally and the money was transferred after the goods were given the all-clear.
The use of blockchain technology may be increasing, however experts suggest that there continues to be legal and regulatory hurdles to address before it becomes widely used.
Regardless, other companies have begun using similar technology. One example is HSBC’s partnership with the Singaporean government to distribute paperless letters of credit for trade finance.
The high volume of companies that are beginning to use blockchain technology indicate its future applications. It appears to be only a matter of time before other industries use ledger technology in their daily activities.