The UK has plans to issue blockchain-based gilts within the next two years, despite having been “slow to embrace” DLT, a Bloomberg report reveals (paywalled). The tokenisation of government debt is expected to “make gilt trading faster and cheaper” in the face of the government’s £297 billion borrowing spree, purportedly the “second largest borrowing slate on record” for the UK.
The idea for digital gilts was already floated in 2022, when the UK’s Treasury revealed that it was exploring the possibility of digitising debt issuance. More recently, according to a Ledger Insights report, industry body UK Finance had suggested in a consultation response published in May this year that the issuance of a digital gilt would be complementary to raising the profile of the UK’s Digital Securities Sandbox (DSS). Although more legislation will be required before blockchain-based sales can become reality, the DSS has already made inroads by experimenting with the relaxation of some regulations.
More to consider
Earlier this year, the Association for Financial Markets in Europe (AFME) suggested that governments planning to integrate blockchain into their debt-raising strategy take a phased approach. Experimental issuances should be carried out for over one to two years before larger sales are adopted.
Ledger Insights lists more factors that have to be considered before digital bonds can be widely adopted. Digital bond issuers should take “additional steps to ensure liquidity”. To cater to investors who are not DLT savvy, bonds should be integrated “with the conventional CSDs”. Ideally, digital bonds should also be eligible as collateral for repo transactions.
