South Korean central bank works on block chain system for bonds

Central banks and Blockchain. It seems to be getting better and better together. The Bank of Korea is also doing a lot of research into possible applications.

Central banks around the world are increasingly beginning to explore the potential of block-chain technology. The Bank of Korea is also participating in this trend. It is planning to rely entirely on block-chain technology for bond settlement in the future.

According to the South Korean news portal BusinessKorea, the central bank confirmed on 18 February that it had conducted a feasibility study in this regard. The bank selected the participants for the study at the end of 2019. The study is to cover the first half of this year. The Blockchain project will be overseen by the bank’s own research group on digital currencies.

 

Platform to manage the issue and settlement of bonds

The South Korean central bank wants a system that can handle the entire bond process. The block chain technology will thus be able to manage both issuance and settlement, and to communicate the status of bonds to all network participants.

The block-chain platform will replace the current system, in which all settlements must be verified by South Korea’s central securities depository. In place of a central location, there will then be several network nodes operated by different financial institutions. The central bank is also examining models that would operate with several block chains.

An exact start date for the system has not yet been set. BusinessKorea quotes the central bank as follows:

“In order to introduce block chaining into the bond settlement system, many legal issues need to be reviewed, so we will not offer the service immediately. We are checking whether the system is working properly by focusing on technological issues.”

 

Trials with block chain bonds also in Spain and Australia

Meanwhile, the Bank of Korea is not the only financial institution that wants to convert bond processing into digital form. This is because the Commonwealth Bank of Australia already conducted a similar block-chain-based experiment in 2018. On behalf of the World Bank, it developed a special Kangoroo Bond. The bond, which is linked to the Australian dollar, can be processed entirely via the Ethereum Blockchain.

In addition, Spain’s Banco Santander also undertook initial field trials in this area. Spain’s largest bank also issued a bond in the amount of 20 million US dollars entirely on the Ethereum Blockchain.