According to Austrian news outlet Kleine Zeitung, Austria is getting ready to issue more than a billion Euros worth of government debt using the Ethereum blockchain. The bonds will be issued by Oesterreichische Kontrollbank (OeKB), on behalf of the Austrian Treasury (OeBFA). OeKB has created a blockchain-based notarization service that will serve as a register for who owns the government debt.
The OeKB announced that this will be the first time that blockchain-based notarization will be employed to facilitate an Austrian Federal Bond Auction. OeKB has designed a blockchain platform that will,
“Notarize data from Austria’s established system (the Austrian Direct Auction System or ADAS) as hash values on the Ethereum public blockchain.”
Hartwig Löger, Austria’s Finance Minister, said that they think blockchain tech, “forms a focus on economic policy,” and that, “Through setting up the FinTech Advisory Council at the Ministry of Finance, we are developing strategies enabling Austria to benefit optimally from these developments.” There is little doubt that blockchain is an efficient transactional system, and it looks like Austria is working to realize the benefits that blockchain can create.
Austria Joins Other Innovators
The global bond market is the largest market for securities in the world. Despite the fact that governmental debt makes up the back-bone of the global banking system, the chain-of-custody that establishes ownership of government bonds is extremely complex.
Government debt is used for numerous things within the financial system, like collateral for other forms of transactions. There have been many cases when counterparties are unable to deliver government bonds they have promised to another market participant, which can create widespread problems with confidence.
The managing director at the Austrian Treasury, Markus Stix, told Kleine Zeitung that he sees blockchain as providing a new level of oversight in the debt markets,
“This added security contributes to achieving a high level of confidence in the auction process for Austrian government bonds and strengthens Austria’s good standing in the market, which indirectly also has the capacity to contribute to favourable financing costs.”
Austria is using blockchain in a novel way, which could help other nations to realize the advantages that DLT delivers to complex markets. For now Austria has decided to stop short of actually making their debt tradeable via new a new platform, which could be the next step in streamlining the global securities marketplace.
Blockchain Could Create New Ways to Trade
Just about any kind of security could be traded via tokens. Right now stocks and bonds are traded on exchanges that work with clearing houses who keep transactional records. Numerous companies are working on alternatives to this system, which is archaic and expensive to operate.
CDRX is developing a platform that would allow traditional financial instruments to be legally represented by a token, which would probably make the entire trading process much cheaper. Using Crypto Depository Receipts (CDRs) also offers benefits for operational efficiency, as many tasks that would normally be performed by the accounting department can be accomplished with smart-contracts.
One of the biggest issues for blockchain adoption in securities trading has little to do with the technology, and far more to do with regulations. Companies like SharesPost have created alternatives to the existing equity markets, but if there is going to be widespread adoption of blockchain as a trading platform for stocks and bonds, there will need to be a fundamental shift in how regulators view DLT.
Support From the Top
Earlier this year the World Bank announced they would be working with Commonwealth Bank of Australia (CBA) to issue a new class of bonds on blockchain. Called the bond-i program, the collaboration between the World Bank and CBA could issue more than $50 billion USD worth of new debt on a yearly basis.
Denis Robitaille, World Bank CIO, said this about the program when it was announced earlier this year,
“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.”
The newly announced program from the OeKB will probably help other major financial institutions to learn more about what blockchain can offer the debt market, and may help regulators to adopt a more progressive stance towards a greater role for DLT.