Commonwealth Bank (CBA), a major commercial bank in Australia has been mandated by the World Bank (International Bank for Reconstruction and Development, IBRD), to be the sole arranger and issuer of a pioneering bond, which will be created, managed and transferred via blockchain technology.
The new World Bank Group’s bond called “bond-i” has already been designed using CBA’s in-house blockchain lab, however, neither the date of the issue nor the size of the bond has been disclosed by both parties. According to CBA, the aim of Bond-I is to have key parties in a bond issuance process such as investors and banks nodes to participate in a distributed network, enabling more efficient transaction and capital raising process.
The World Bank says it has issued $50 to $60 billion of bonds per year as part of its mandate to reduce global poverty and improve sustainability for worldwide markets, but the current bond issuing system leaves a lot of room for improvement.
Denis Robitaille, World Bank Group Chief Information Officer, said concerning Bond-I that: “this pioneering bond is a milestone in our efforts to learn how we can advise our client countries on the opportunities and risk that disruptive technologies offer as we strive to achieve the Sustainable Development Goals.”
Bond-I Using Blockchain Would Ease Bond Issuing Process
Currently, bond issues process are slow, expensive and complicated. First of all, bond sales orders would first be phoned in manually and then taken down by a sales representative into a logbook. These sales orders are then sent to various issuers, who then manually put it into their own system. A ticket is then written based on the information received, and transferred to a registrar. Finally, ownership records which are held by various central banks, clearing houses, custodians, broker-dealers and the customers, plus their advisors are verified. To sum it up, all parties have to conduct multiple reconciliations and accept a lot of expenses and risks to complete the average bond sale.
With the implementation of Bond-I, combined with the use of blockchain technology, will help reduce these processes to the barest minimum. In that regard, Sophie Gilder, Head of Blockchain, Innovation Labs, CBA said that: “We know blockchain has the potential to revolutionize financial services and markets, and this transaction is a significant step towards that future state. 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.