To go by politicians’ rhetoric, the UK is a hotbed of financial innovation. Since 2010, British ministers have variously plugged it as a hub for renminbi trading, sukuk issuances, green finance and the crypto industry. But the enthusiasm is hedged with anxiety about being left behind by smaller, more nimble rivals. Fomo is now fuelling the new government’s reported enthusiasm for using the blockchain to issue gilts.
As yet, there have been relatively few examples of this use of the distributed ledger technology, which allows transaction details to be recorded in multiple places. In 2022, digital bonds raised just 0.02 per cent of the $7.3tn raised by traditional versions, according to S&P.
But some countries, notably Luxembourg, Switzerland and Singapore, have been enthusiastic pioneers. Institutions such as the European Investment Bank and the World Bank are keen to show the technology can be a cheaper, faster and more efficient way to issue debt. The latter is acutely aware that developing countries lack the market infrastructure required for effective debt markets. Digitalisation could allow them to leapfrog those obstacles.