CBA chosen to arrange ‘world-first’ blockchain bond

The World Bank has chosen the Commonwealth Bank of Australia (CBA) to be the sole arranger on the first bond instrument to be based entirely on blockchain technology. 

The so-called “Kangaroo bond” will be denominated in Australian dollars, and classified as a “bond-i”, which stands for Blockchain Offered New Debt Instrument.

The bond-i will be based on the Microsoft Azure-hosted Ethereum-based network.

Paul Snaith, the World Bank’s treasury head of capital markets operation, explained that blockchain “provides an immutable and append-only record that can be almost instantaneously updated when a transaction takes place within seconds.”

He added: “That is the fundamental difference: if you have a trusted record, there is no need for every participant to have their own copy of their position. If everybody trusts the ledger, all we need to do is point to it to know and report our positions.”

Sophie Gilder, head of blockchain at CBA, added that bond-i is the first step towards how capital markets will look in the future.

The bond is expected to raise approximately $50 million due to strong indicative investor interest, with support from Northern Trust, QBE and Treasury Corporation of Victoria.

Once launched, the bond will be issued and distributed on a blockchain-based platform operated by the World Bank and CBA in Washington and Sydney, respectively.

James Wall, CBA executive general manager of institutional banking and markets international, said he believed the transaction will demonstrate “how blockchain technology can act as a facilitating platform for different participants.”

The World Bank said that it has a mandate to reduce poverty and promote sustainable development, and issues between US$50 million and US$60 million annual in bonds to fulfil its mandate.

The bank has been exploring ways to help nations transition to sustainable, technology-driven economies.

“Since our first bond transaction in 1947, innovation and investor satisfaction have been important hallmarks of our success with leveraging capital markets for development,” World Bank treasurer Arunma Oteh said.

“Today, we believe that emerging technologies equally offer transformative yet prudent possibilities for us to continue to innovate, respond to investor needs and strengthen markets.”

Commonwealth Bank has been experimenting with blockchain technologies for some time. For example, in 2016, major bank Wells Fargo and Brighann Cotton claimed the first interbank trade transaction combining blockchain technology, smart contracts and the Internet of Things to transfer 88 bales of cotton from Texas, USA to Qingdao, China.

Last month, CBA announced using blockchain technology to help facilitate the shipping of 17 tonnes of almonds from Sunraysia in Victoria to Hamburg in Germany, in partnership with Olam Orchards Australia, Pacific National, the Port of Melbourne, Patrick Terminals and shipping carrier OOCL Limited.

The big four bank also recently revealed that the Queensland Treasury Corporation had issued a “virtual cryptobond” using the bank’s private blockchain program.

[Related: Blockchain P2P lender secures $1.35m to fund growth]