Canada issues first-ever bond issue in Bank of Canada DLT pilot
Canada has completed a pilot program to test the use of distributed ledger technology in bond markets, issuing the country's first tokenized bonds, the Bank of Canada announced Friday.
The experiment, known as Project Samara, involved the Bank of Canada, Canadian Export Development, Royal Bank of Canada and TD Bank Group, and explored whether a blockchain-style infrastructure could streamline bond issuance, trading and settlement.
As part of the pilot, Export Development Canada issued 100 million Canadian dollars ($73.6 million) in bonds with maturities of less than three months to a group of investors. The securities were issued, traded and settled on a distributed ledger platform, where payments were made through wholesale central bank depositors rather than commercial bank funds.
The platform, built on Hyperledger Fabric, allows participants to manage the entire lifecycle of a security, including issuance, auction, coupon payment, redemption and secondary trading, and integrates disparate ledgers for cash and bonds for faster settlement.
The pilot highlighted the trade-offs in rolling out a distributed ledger approach to capital markets. Participants reported improvements in operations and data accuracy, but also identified management, control and integration challenges.
The researchers said the results suggest that distributed ledger systems improve settlement efficiency and reduce associated risk, although wider adoption may be hampered by infrastructure and regulatory barriers.
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Tokenized bonds have been widely adopted by governments and banks
Canada's pilot program adds to a growing number of experiments by governments and financial institutions exploring how blockchain-based systems can improve traditional financial asset issuance and settlement.
An early example came in 2018 when the World Bank issued a two-year, $110 million “Bond-i” debt instrument arranged by the Commonwealth Bank of Australia. The issuance is considered to be the first bond whose creation, distribution and lifecycle management are recorded on the blockchain.
By 2022, the Monetary Authority of Singapore has launched Project Guardian to study how distributed ledger technology can be used in wholesale financial markets. Early industrial pilots examined bonds and deposits stored on public blockchains for lending and borrowing decentralized financial applications.
In the year In 2023, Hong Kong issued a tokenized green bond using a distributed ledger infrastructure facilitated by the Hong Kong Monetary Authority. The program will expand with additional digital booking offerings in 2024 and 2025.
The World Bank has issued a Swiss franc digital bond on six digital exchanges in 2024 using the Swiss National Bank's wholesale central bank digital currency.
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