Key Takeaways
- The European Investment Bank (EIB) has been at the forefront of the tokenized bond movement.
- Meanwhile, the U.K. government plans to pilot digital Gilts.
- In the U.S., the Treasury has discussed the prospect of tokenizing government debt but hasn’t made any plans yet.
Taking their cue from the private sector, where tokenized securities are rapidly gaining traction, European public institutions are issuing increasing amounts of government debt on-chain.
But the federal U.S. government has yet to take the leap.
That may not be the case for long, however, as there are signs that the Treasury is warming to the idea.
EIB Issues Digital Bond To Be Settled With CBDC
The European Investment Bank (EIB) has been at the forefront of the tokenized bond movement since 2021, when it issued a 100 million euro two-year bond on Ethereum.
Since then, the organization has worked with European central and commercial banks to explore a variety of blockchain-based solutions. These include platforms built by HSBC, Goldman Sachs and Société Générale.
For its fifth digital bond, the EIB recently issued a €100 million fixed-rate note on HSBC’s Orion tokenization platform. Meanwhile, the Banque de France’s pilot central bank digital currency (CBDC) settlement system, DL3S, is used to settle transactions.
As Europe continues to push the envelope, the EIB’s latest endeavor sets a precedent for integrating blockchain-based assets into established financial ecosystems. It also poses a question for other global economies: will they follow suit?
U.K. To Pilot Digital Gilts
During a speech on Thursday, Nov. 14, the U.K.’s Chancellor of the Exchequer, Rachel Reeves, announced that the government would launch a pilot to deliver a “Digital Gilt Instrument” (DIGIT) using distributed ledger technology. A Gilt is a type of fixed-income government bond issued by the Treasury.
While specifics on the timing and implementation remain under wraps, the announcement underscored the potential of tokenization in sovereign debt markets.
In the long term, tokenization could significantly improve liquidity, potentially helping prevent a repeat of the 2022 Gilt crisis, when U.K. bonds embarked on a dramatic downward spiral and several large pension funds nearly fell.
Tokenized Treasuries
In the U.S., cities like Quincy, Massachusetts, have issued municipal bonds on-chain, but tokenization has not yet taken off at the federal level. However, the topic is finally gaining traction.
During a recent meeting of the Treasury Borrowing Advisory Committee (TBAC), officials discussed the pros and cons of tokenizing U.S. Treasuries.
“tokenization could lead both to operational improvements and to innovation in the Treasury market.”
However, they caution that the technology presents “operational, regulatory, and financial stability risks.”
Given these risks, the presenting official argued that tokenization in the Treasury market would likely require the development of a “privately controlled and permissioned blockchain managed by a trusted government authority.”
While this statement probably rules out issuing Treasuries on a public blockchain like Ethereum, as the EIB has demonstrated in its collaboration with HSBC, issuing and settling tokenized bonds on private chains is perfectly feasible.
The TBAC discussion comes as President-Elect Donald Trump considers different candidates to be his Treasury Secretary.
Cantor Fitzgerald CEO Howard Lutnick and Hedge Fund Manager Scott Bessent are among the top contenders.
However, given the anti-CBDC position adopted by Trump and many Republicans in recent years, the Treasury is unlikely to follow the EU model, which sees tokenization as part of the same technological movement to digitize trade and investment.
James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
