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According to the Austrian press agency Kleine Zeitung, Austria is preparing to issue a government debt of over one billion euros using the Ethereum blockchain. The bonds will be issued by Oesterreichische Kontrollbank (OeKB), on behalf of the Austrian Treasury (OeBFA). OeKB has created a blockchain-based notarial service that will act as a register for those with public debt.
OeKB announced that this will be the first time that blockchain-based notarization will be used to facilitate an Austrian federal auction. OeKB has designed a blockchain platform that,
"Notarising data from the system established in Austria (the Austrian system of direct auctions or ADAS) as hash values on the Ethereum public blockchain."
Austrian Finance Minister Hartwig Löger said he was thinking of blockchain technology, "Focuses on economic policy" and that, "Through the establishment of the FinTech Advisory Council at the Ministry of Finance, we are developing strategies to enable Austria to benefit from these developments in an optimal way". There is no doubt that blockchain is an efficient transactional system, and it seems that Austria is working to realize the benefits that the blockchain can create.
Austria unites other innovators
The global bond market is the largest securities market in the world. Despite the fact that public debt is the backbone of the global banking system, the chain of custody that establishes ownership of government bonds is extremely complex.
Public debt is used for many things within the financial system, such as guarantees for other forms of transactions. There have been many cases where counterparties are unable to provide the promised government bonds to another market participant, which can create widespread problems with confidence.
The managing director of the Austrian Treasury, Markus Stix, told Kleine Zeitung that he sees the blockchain as a new level of oversight in the debt markets,
"This increased security helps to achieve a high level of confidence in the auction process for Austrian government bonds and strengthens Austria's good position in the market, which also indirectly has the capacity to contribute to favorable financing costs".
Austria uses the blockchain in a new way, which could help other nations realize the benefits that DLT offers to complex markets. For the time being, Austria has decided to stop making its negotiable debt through a new new platform, which could be the next step towards rationalizing the global securities market.
Blockchain could create new ways of exchange
Almost all security types could be exchanged via tokens. At this time, stocks and bonds are traded in exchanges that work with clearing houses that store transactional documents. Numerous companies are working on alternatives to this system, which is archaic and expensive to manage.
CDRX is developing a platform that allows traditional financial instruments to be legally represented by a token, which would probably make the whole negotiation process much cheaper. The use of Crypto Depository Receipts (CDR) also offers advantages for operational efficiency, since many activities that would normally be carried out by the accounting department can be carried out with smart contracts.
One of the biggest problems with the adoption of blockchain in securities trading has little to do with technology and much more to do with regulation. Companies like SharesPost have created alternatives to existing equity markets, but if there is a widespread adoption of blockchain as a trading platform for stocks and bonds, there will be a need for fundamental change in the way legislators see DLT.
Support from the top
At the beginning of this year, the World Bank announced that it would work with the Commonwealth Bank of Australia (CBA) to issue a new class of bonds on blockchain. Called the bond-i program, the collaboration between the World Bank and CBA could issue more than $ 50 billion of new debt on an annual basis.
Denis Robitaille, CIO of the World Bank, said this about the program when it was announced at the start of this year,
"This pioneering bond represents a milestone in our efforts to learn how we can advise our client countries on the opportunities and risk that disruptive technologies offer as we strive to achieve the Sustainable Development Goals."
The program just announced by OeKB will probably help other important financial institutions to learn more about what the blockchain can offer the debt market, and can help legislators to adopt a more progressive position towards a greater role for DLT.
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