P Xenos and M Bacina
Bank of Korea set to deploy blockchain based bond system
South Korea’s central bank has announced that it is currently working on its own blockchain-based system that would allow the management and distribution of bond records.
The Bank of Korea launched a Proof of Concept (PoC) project in late 2019 in order to move bond transaction records that are currently maintained by the Korea Securities Depository to a blockchain-powered base of records accessible by multiple nodes. The blockchain bond project would involve separate nodes operated by South Korea's regulatory authority, the Korea Fair Trade Commission, the Bank of Korea and other financial institutions and is reportedly being developed by an entity called Han-han.
A local official reportedly confirmed that the South Korea’s financial authorities have been testing the potential of blockchain in terms of issuing state bonds to record transactions (emphasis added):
We are using government bonds to record securities and cash transactions in a distributed ledger and test whether a real-time simultaneous payment trading system is possible.
Commenting on the difficulty involved with incorporating blockchain processes into the highly regulated bond market, and flagging the possibility of delays in any rollout, developer Hanhan said (translated):
In order to introduce the blockchain into the bond payment system, there are many legal issues that need to be reviewed, so we do not provide service right away.
The Bank of Korea's blockchain research regarding the bond market is being conducted with reference to the first-ever blockchain bond transaction handled by the World Bank and the Commonwealth Bank of Australia back in 2018.
The World Bank raised a total of $74 million for its two-year blockchain bond as of August 2019. According to the bank, the bond is the first to be created, allocated, transferred and managed throughout its life cycle using distributed ledger technology.
The Bank of Korea also announced in late 2019 that it will be setting up a dedicated group of researchers to begin experimenting, and develop a central bank digital currency in 2020.
As debates about the merits of central bank digital currencies continue, banks and other financial institutions globally are increasingly looking at blockchain technology as a tool to make interbanking processes more efficient and transparent. Using the existing blockchain bond experiments as a framework, it is likely that experimentation will continue in this space.