Bank of Korea working on blockchain for issuing bonds

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The Bank of Korea is working on a proprietary system for issuing bonds on the blockchain, in the latest example of a global central bank turning to blockchain technology.

The South Korean central bank has reportedly been working on a blockchain pilot since late 2019, for a system that would issue and record bonds on a blockchain. According to local media reports, the bank is now searching for a blockchain services partner to help deliver the system.

The bank hopes the blockchain system could ultimately replace the current mechanisms for exchanging and recording bonds in South Korea, through a more effective blockchain model of managing bonds through their life cycle.

The project aims to shift bonds transaction reports from the Korea Securities Depository to the blockchain, improving efficiency and accuracy while saving on the ongoing costs of administration.

The blockchain would be powered by nodes operated by a number of senior financial and regulatory bodies in Korea, including the Korea Fair Trade Commission, the Bank of Korea, and other commercial banks.

A senior official quoted in local press said testing has already been conducted to demonstrate the potential for a blockchain powered system for bonds transactions: “We are using government bonds to record securities and cash transactions in a distributed ledger and test whether a real-time simultaneous payment trading system is possible.”

According to reports in Yonhap Infomax, the bank has been building its proof of concept with reference to the first ever blockchain bond issue run by the World Bank and the Commonwealth Bank of Australia in 2018.

At the time, the World Bank raised some $74 million against its two-year bond issue, in a transaction that was entirely executed, transferred and stored on the blockchain.

The project is not the first blockchain work to be undertaken by the central bank, which is also reported to be weighing the benefits of launching a central bank digital currency, in common with a number of other central banks worldwide.

The Bank of Korea first announced last year that it was to set up a research group to look at a central bank digital currency in 2020.