Hong Kong to launch second iteration of tokenized green bonds

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Hong Kong is eyeing a second launch of tokenized green bonds in the coming weeks in a move expected to push the local economy.

The Hong Kong Monetary Authority (HKMA) may proceed with a tokenized green bond launch as early as February 2024, as the South China Morning Post (SCMP) reported. HKMA CEO Eddie Yue hinted at the development at the Hong Kong Economic Summit, stating that a challenging macroeconomic environment may force the hand of the regulator.

Apart from Yue’s comments, analysts are keeping their eyes peeled on several roadshows organized by leading commercial banks in Hong Kong ahead of the proposed launch. Per the report, HSBC (NASDAQ: HSBC), Goldman Sachs (NASDAQ: GS), Bank of China (Hong Kong) (NASDAQ: BACHF), and Agricole CIB (NASDAQ: CRARF) have all launched roadshows linked to an incoming tokenized green bond.

The report predicts a February launch date that is expected to coincide with the region’s “Green Finance Week” and the redemption of the first issuance.

In early 2023, Hong Kong debuted Project Evergreen, its HKD 800 million (US$102 million) green bond offering, using Goldman Sachs’ Digital Asset Platform. Given the warm reception of the offering and the lessons gleaned from the launch, the HKMA is setting itself up for yet another foray with the same banks jostling for a piece of the pie.

In the future, the HKMA’s new tokenized green bonds will offer a 4.05% return, akin to Project Evergreen. They will rely on blockchain technology. The SCMP reports that the incoming offering will use blockchain in its entirety—“from derivation to recovery”—for efficiency and transparency.

“It also showed the potential in DLT to enhance efficiency, liquidity and transparency in bond markets,” said the HKMA in an overview of Project Evergreen.

While not expressly stated, there is widespread speculation that the HKMA may rely on central bank digital currencies (CBDCs) for settlement, with Yue hailing the project as the “world’s most advanced.”

Currently, the HKMA is inching forward with the joint mCBDC experiment set to roll out a minimum viable product (MVP) in 2024.

Setting new tokenization guidelines

Hong Kong’s Securities and Futures Commission (SFC) unveiled two circulars to protect investors dabbling in tokenized assets amid soaring demand in November.

The guidelines state that intermediaries offering tokenization services are urged to mitigate associated risks, adopt global best practices for custody, and carry out due diligence. Intermediaries are advised to adopt flexible approaches while imposing liabilities on them for the issuance of tokenized securities.

“The SFC sees the potential benefits of tokenisation to the financial markets, particularly in increasing efficiency, enhancing transparency, reducing settlement time and lowering costs for traditional finance, but it is also aware of the new risks arising from the use of this technology,” read the circular.

Watch: Tokenizing processes—accounting & mapping transactions on-chain