On 10 August, the International Bank for Reconstruction and Development said it has mandated the Commonwealth Bank of Australia (CBA) as the exclusive arranger of the world’s first bond issuance solely using blockchain technology, via Moody’s.
This is credit positive for CBA because it shows the bank is making headway with significant fintech initiatives, which can help improve its operating efficiency and fend off new competition.
CBA will use the private Ethereum blockchain platform to create, allocate, transfer and manage a new debt instrument debt, dubbed “bond-i.” The transaction will provide a platform for future debt-security issuance using blockchain technology. The use of blockchain for bond issuance can offer efficiency benefits for both issuers and arrangers by simplifying the settlement processes. The technology can be used for both registry and payment systems, consolidating payments by investors and title transfers by issuers into single, instant transactions.
Prior to this transaction, CBA experimented blockchain-based bond issuance with government entity Queensland Treasury Corporation (State of Queensland, Aa1 stable). In January 2017, the bank arranged the issuance of a so-called cryptobond for Queensland, by utilizing blockchain technology. It was a trial transaction carrying no debt obligation, with Queensland acting as both the issuer and investor to test the process.
As discussed in our Bank of the Future report, fintech innovations such as these will help traditional banks reduce operating costs and also mitigate the risk of disruption by new fintech firms
