The Accountant General’s Division at the Ministry of Finance and the Stock Exchange in Tel Aviv announced today (Wed) that they are examining the issuance of digital bonds on a blockchain-based infrastructure – an infrastructure in which the information about transactions is stored in a decentralized manner on many computers and not on a single central computer. Wine is the technological infrastructure behind cryptocurrencies, but this infrastructure enables additional applications such as issuing bonds.
The Treasury and the stock exchange established a joint team under the name “Eden” project to examine the business and technological feasibility of digital bond clearing of the State of Israel on a new platform for trading and clearing digital assets.
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The idea of issuing bonds on a blockchain platform has already been implemented in several places in the world in recent years. In April of last year, for example, the European Investment Bank (EIB) issued a digital series of bonds amounting to 100 million euros based on the Ethereum platform. Even earlier, in 2018, the World Bank issued its own digital bond series on the blockchain in the amount of 110 million dollars.
According to the announcement issued by the Tel Aviv Stock Exchange, “The Stock Exchange and the Accountant General are examining this in light of the developments in the financial markets in recent years, including the variety of experiments carried out by financial institutions and central banks in the world in connection with the issuance of digital currencies. This is in light of the understanding that these developments will fundamentally and innovatively change the financial markets in general and the trading and clearing worlds in particular.”
As part of the process, a pilot of the digitization of a government bond series and its issuance (dummy issuance) will be carried out for the treasury and the stock exchange by the Israeli unicorn Fireblocks, which is developing a system for the secure transfer of digital assets through electronic wallets, and the VMware company. The blockchain infrastructure of VMware was also part of an experiment by the Bank of Israel to issue a digital shekel.
In issuing the dummy units purchased of the new series will be issued to the electronic wallets of the pilot participants. The proceeds of the issue will be transferred via a digital payment method from the electronic wallets of the participants to the designated electronic wallet of the State of Israel.
streamlining procedures and reducing risks
According to the announcement, “the application of advanced technologies will reduce costs, shorten the time periods involved in the issuance and clearing of government bonds, increase transparency, optimize processes and reduce risks.” However, even from the announcement it is clear that this is the beginning of the inspection process, and it is not clear when the project will be realized in practice.
“I believe that blockchain-based technology is here to stay, and over time they will penetrate the core of the financial markets and change them in a fundamental and deep way. Our duty is to examine new technologies and work methods all the time,” the general accountant, Yali Rotenberg, was quoted in the announcement.
According to Michael Shaulov, CEO and co-founder of FireBlocks, “The pilot is generating interest around the world, as it may be a turning point in how governments treat digital assets. Following it, governments may become a central player in it and accelerate the business momentum that characterizes the digital assets market in recent years.”