Money

World Bank Raises US$80M With First Global Blockchain Bond

The World Bank just launched an $80 million worldwide R&D experiment that could change forever the way money is managed.

A graphic depiction of the blockchain distributed network based approach used to manage transactions in the World Bank experiment.

Over the two day August 23-24 period, the World Bank did something radical. It raised A$110 million (US $80.6 million) in an offering of a very different kind of bond.

Raising that much in a bond offering is common, of course. But this was, as the World Bank announced over the weekend, “the first bond to be created, allocated, transferred and managed using distributed ledger technology”. The technology of choice for the project was none other than blockchain, the tech behind much of the world’s cryptocurrencies.

The bond comes from the World Bank’s ongoing look into disruptive technologies which could change even the fundamental nature of what money is. In June 2017, the World Bank created its own Blockchain Innovation Lab to help understand the impact of blockchain and other fintech technologies in areas such as land administration, supply chain management, health, education, cross-border payments, and carbon market trading. While what the World Bank did was itself not necessarily groundbreaking on a technical level, but the sheer scale of the bond-i offering and all the linkages it will create are what could change the way bank transactions are done in the very near future.

To conduct a full test of what it might mean on to shift to a blockchain platform on a grand scale, the World Bank decided they had no choice but to run their full experiment on an equally grand scale. The new bond, nicknamed “bond-i” (for blockchain operated new debt instrument), was issued with the Commonwealth Bank of Australia (CBA) named as arranger for the offering. Australian investors who wanted to participate in the bond purchase had to buy at least a half million dollars each of the new bond-i. The bond offers a return of 2.251 percent over two years.

Ethereum-based distributed ledger technology was used as the backbone for the asset transfers and accounting security for the World Bank's bond-i test. The cryptocurrency was itself involved in the test.

Everything about the new bond is being managed by a private Ethereum-based distributed ledger, also known by the acronym DLT. That covers creation of the bond, transference of assets, and settlement of the bond instrument. (Ether is one of many cryptocurrencies trading across the world right now.)

As to why the CBA was selected as the arranger, part of that comes from a recent decision by the Australian Securities Exchange (ASX) to convert its current trading system to a blockchain-based DLT. It claims the change will save shareholders an estimated $17 billion a year. The full bond-I blockchain platform was built by CBA’s Blockchain Centre of Excellence, which itself is housed in the Sydney Innovation Lab.

According to the World Bank, initial investors in the new offering included CBA, First State Super, NSW Treasury Corporation, Northern Trust, QBE, SAFA, and Treasury Corporation of Victoria.

The whole lifecycle of the bond will be studied carefully by CBA and the World Bank. Analysts are already digging into the launch process to understand what worked and what may need improvement. A next step in the process is the bond settlement date, which is August 28. Then will come two years of managing the instrument until it matures.

The World Bank itself has a lot at stake as the project moves forward. It issues between US $50 to US $60 billion annually worldwide for sustainable development projects around the world. When all learnings have been worked out, the World Bank could save many billions of dollars itself in its operating costs. It will also be able to have better control over security and transparency in every step of its financing transaction going forward.

The World Bank is headquartered in Washington, D.C.