The Accountant General, through the debt unit in the financing division, and the Tel Aviv Stock Exchange, are examining the application of issuing digital bonds on a blockchain-based infrastructure. Recently, the entities established a joint team to examine the business and technological feasibility (Proof of Concept) of bond clearing digital of the State of Israel on a new platform for trading and clearing digital assets. The new platform is based on innovative technologies – Blockchain (Distributed Ledger Technology – DLT), Smart Contracts and Tokenization.
The Stock Exchange and the Accountant General are examining this in light of the developments in the financial markets in recent years, including – the use of DLT technologies, tokenization of various types of assets and 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 The financial markets in general, and the trading and clearing worlds in particular.
Government debt issuance and management processes are complex processes, which are carried out on a significant scale, require synchronization between different systems, integrate many factors (local and international) and require close regulatory monitoring and accompaniment. The “Eden” project is the opening shot to this new world which will allow an important first foothold and will form the infrastructure for perfecting other traditional mechanisms down the road. The application of advanced technologies will reduce costs, shorten the time periods involved in issuing and clearing government bonds, increase transparency, optimize processes and reduce risks.
As part of the feasibility study, a new series of bonds will be digitized and issued (dummy issue) to the participants of the system. In the issue, the leading banks, international and local, (Primary Dealers) will participate in a “live experiment” in which they will be connected to a dedicated blockchain-based system, which will be developed on by the stock exchange and the selected technology providers. The purchased units of the new series will be issued to the electronic wallets of the pilot participants. In exchange for the issuance, will be transferred through a digital payment method, from the electronic wallets of the participants to the designated electronic wallet of the State of Israel.
The Accountant General, Yehli Rotenberg, clarified that “the step we are now leading, together with the Stock Exchange, to issue government bonds on a blockchain-based platform, places the State of Israel at the forefront of technology and will allow us to examine, in a safe and controlled manner, new options for issuance and management of the government debt.
“I believe,” added Rotenberg, “that blockchain-based technology is here to stay and over time will penetrate the core of the financial markets and change them in a fundamental and profound way. Our duty is to constantly test new technologies and work methods, just recently we launched a new platform for state payments to small businesses.” I would like to thank the stock exchange and the other partners – the market makers and the technology companies for the cooperation in this innovative and important project of this kind.”
The rationale behind the issue was explained by Senior Deputy Accountant General and Director of the Finance Division, Gil Cohen, who said that “At the Ministry of Finance, we closely follow the major technological developments that affect the capital markets around the world, including in the blockchain field. About six months ago, we already held a hackathon to examine blockchain applications Wine in the issuance of government debt with the best Israeli startups in the field. Now, we are taking a significant step in examining the issuance of government bonds on the blockchain, this is a step that has the potential to promote a more inclusive and accessible capital market as well as to streamline the management of government debt. I would like to thank the Stock Exchange and the other partners in this pioneering and important project.”
Itay Ben Ze’ev, CEO of the Stock Exchange, said last night that “the financial markets have been undergoing drastic changes in recent years, with the introduction of revolutionary technologies that affect the way customers all over the world operate and invest. As in other fields in which Israel is a global technological pioneer, we aspire that in the financial field Israel will be one of the first in the world to adopt the most innovative technologies, thus perfecting and making the capital market accessible for the benefit of the general public. I want to thank the General Accountant Division and everyone who takes part in this important project, which is an important first step on the way to a more sophisticated and accessible capital market.”
The feasibility test will be carried out by leading technology companies in the field of digital assets – Fireblocks and – VMware.
Fireblocks is a private company based in New York, whose value is estimated at approximately 8 billion dollars. Founded in 2018 by Israeli founders who are cybersecurity experts and provides a platform for the secure transfer of digital assets through electronic wallets. Fireblocks is considered the leading provider in the world today in this field. The company has over 1500 institutional clients, including BNY Mellon, ABN Amro, and ANZ Bank. And it provides services for more than 1,000 assets and digital currencies built on 40 public and private blockchain networks.
VMware is a leading provider of multi-cloud services for all applications, enabling digital innovation with enterprise control. To expand the digital base, VMware provides a blockchain platform to run mission-critical distributed applications in a multi-participant environment. VMware’s blockchain product supports the Ethereum model, and enables the writing of smart contracts in languages such as Solidity. The product is currently being used by the Broadridge company, as well as being used by the Australian Stock Exchange (ASX), which is in the testing phase. In addition, the VMware blockchain was part of an experiment by the Bank of Israel to issue a digital shekel, an experiment that was successful and was published at the end of May this year in the Bank of Israel report.