The government of Austria, like almost everyone else on the planet, is sinking more and more into debt. The country plans to raise 1.15 billion euros at an auction next Tuesday.
In an effort to reduce costs and increase efficiency, bonds will be issued and authenticated using the Ethereum blockchain.
Austrian Finance Minister Hartwig Löger stated the following in a statement:
For us, blockchain technology is an important part of economic policy. With the establishment of the Fintech Council in the Ministry of Finance, we are developing strategies for Austria to make the most of these developments.
Tokenization of government bonds
Two bonds will be issued: one maturing in 5 years and the other in 10 years. The 10-year high yield bond will yield an attractive interest of 0.78%, which investors (hopefully) will be able to raise within 10 years.
For those readers who are not familiar with the operation of government funding, it is essentially like an ICO, except that instead of a startup that offers promises of revolutionary technology, governments sell bonds (complicated paper tokens) based on the promise of being able to extract taxes from their citizens.
The bonds will be issued by the OeKB (Oesterreichische Kontrollbank) on behalf of the Austrian treasury, but it is not exactly a symbolic sale. The debt itself is recorded only on the blockchain and will not be negotiable, but it is an important step towards potential future tokenization.
Bullish news for Cryptocurrency
This is good news for cryptocurrency prices. It means advertising for the real value of technology. Austria is known for being relatively conservative. If the country is able to find uses for the Ethereum blockchain, it is likely that other governments will follow the example. This means large potential increases in demand.
Furthermore, the move is an important step towards greater regulatory clarity for tokenised resources, which represents a further step towards the mainstream of blockchain-based activities. As both technology and regulatory procedures have solved their problems, entry barriers for other players looking to enter the market will be lowered.
This is not the first time that bonds have been issued using a public blockchain. Sberbank in Russia issued bonds in May using the Hyperledge fabric structureand Australia recently partnered with the World Bank to issue bonds on a blockchain.
This announcement is an important development, however, due to the choice of the Ethereum blockchain. It is the first time that the main public blockchain is chosen for a task usually reserved for consolidated but highly bureaucratic and inefficient financial institutions.
If this is a sign of what is to come, the flow of institutional money that enters the blockchain space could turn into a flood.
Is the popularity of the Ethereum blockchain in big banks and governments a sign of power? Leave your conspiracy theories in the comments!
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