Blockchain-based bonds are more accessible for retail market participants
China Construction Bank (CCB), which is owned by the state, is working on becoming the first bank in the country to start issuing bonds with the power of blockchain technology.
Traditionally, bonds are only available to professional investors. However, industry pundits believe that using blockchain would help reduce the overall cost and extend access to bonds towards retail market participants as well. Thanks to its partnership with Fusang, investors will now be able to trade their US dollar-denominated bonds for bitcoin.
The CCB will start by issuing $3 billion worth of debt in the form of tokens that are based on the blockchain. The offshore bond will be backed by deposits at the CCB’s Labuan, Malaysia branch, and the issuance will be stretched across a three-month period.
At maturity, the investment will provide around 0.75 per cent in annual return. While this is a small amount when compared to standards used in the cryptocurrency industry, the figure is still bigger than the 0.25 per cent interest rate that is offered by a lot of other banks.
The Fusang Exchange’s involvement will allow the digital bonds at the CCB to trade for both US dollars and Bitcoin. The Chief Executive Officer (CEO) of Fusang, Henry Chong, stated that with blockchain technology added to the mix, retail investors now have access to investments that were previously reserved for institutional market participants only. This is most likely going to be the case when the project goes live, as the certificate of deposit notes start at just $100 each.
The South China Morning Post reported that the investment vehicle is going live this Friday.
The CCB’s bonds initiative is a part of a wide Chinese push to embrace new financial technologies. The nation has long established itself as one of the pioneers when it comes to digital payments. Platforms in the country, such as AliPay and WeChat Pay, have experienced massive adoption rates and the People’s Bank of China (PBC) itself has been hard at work in the development of their own central bank digital currency (CBDC), the digital yuan. There are currently plans to continue piloting the digital yuan in the capital city, Beijing, and it has already been tested in multiple other locations around the country.
The President of China, Xi Jinping, affirmed the country’s commitment to growing these emerging industries last year when he announced his desire for the nation to become a world leader in blockchain development.