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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

The World Bank announced on August 10 that 70 years after its first bond transaction, it will be issuing the first bond to use entirely blockchain technology, in part to help the bank gain experience in the use of blockchain. The World Bank’s innovation lab partnered with the Commonwealth Bank of Australia (CBAUF) and Microsoft on this endeavor almost a year in the making.

Blockchain is a growing list of records, or “blocks” linked using cryptography and resistant to modification since it is essentially an open, distributed ledger that can record transactions between two parties efficiently and verifiable in a permanent way. This means that once data is recorded, the data in a block cannot be altered without altering all later blocks, which requires majority consensus of the network. Just imagine all the people around the world agreeing to verify a single block and all subsequent blocks!

While last year, the German automaker Daimler used blockchain technology to issue a type of German bond, this appears to be the first global bond of its kind. However, as there is currently no central bank-backed digital currency, this bond will rely on Australian dollars. This should provide confidence to those who are concerned about the volatility of cryptocurrencies such as bitcoin. The CBAUF will manage the two-year bond, being referred to as the "Blockchain Offered New Debt Instrument," or "bond-i", named in honor of Bondi Beach in Australia.

According to the World Bank, it currently issues $50-60 billion a year in bonds. The bond-i is expected to raise $50-100 million Australian dollars ($36-73 million US dollars). Partnering with the CBAUF seems a natural fit as Australia’s stock exchange plans to solely use blockchain to clear and settle stock trades by the end of 2020.

Some advantages that the World Bank cites for entering the world of blockchain:

  • Improve transparency
  • Cut down on transaction time since eventually the bonds can be instantly exchanged for cash
    • NOTE: For now, investors will need to register and transmit cash separately from the blockchain
  • Cut down on the physical paperwork used in banking
  • Reduce costs and increase speed of trading for both bond issuers and investors

The World Bank’s use and endorsement of blockchain is a major step forward in the use of this new technology that is gaining the interest of many major companies around the globe.