According to recent news reports in China, the Bank of China (BOC), which is one of the four largest state-owned commercial banks in China, issued $2.8 billion worth of bonds using blockchain technology on December 3rd 2019. The blockchain system developed by BoC includes functions such as bond creation, bookkeeping, underwriting, network management, bond purchase, order summary, pricing and placement.
Despite the crackdown on Cryptocurrency trading since 2017, China has been increasingly active with the use of blockchain, through a national digital currency, a developing security token framework, and now the issuance of 20 billion yuan ($2.8 billion) worth of bonds using its proprietary blockchain system.
According to a report by China Daily, China’s total outstanding loans for small enterprises surged to the highest level in Asia in May, at 10.3 trillion yuan ($1.5 trillion), a 21% increase from a year earlier, The bonds were to be used as part of small business loans, an initiative to boost the Chinese economy by supporting micro and small businesses (MSEs) by leveraging China’s own independently developed blockchain bond issuance system.
The bonds feature a two-year fixed-rate offering and a final coupon rate of 3.25%. According to the bank, the system represents “the nation’s first bookkeeping system based on blockchain technology”.
The news comes as China’s integration of blockchain technology is receiving notable attention. Governing authorities in the country are developing a number of projects featuring the emerging technology.
China has been working on several blockchain projects and is probably aiming to dominate the market soon. Last month, the Bank of China launched an insurance blockchain along with multiple partners. It is also working with IBM to research application of AI, blockchain and IoT for the financial sector.
Then, there is the blockchain forfaiting transaction (BCFT) platform which the Bank of China developed in collaboration with CITIC Bank, Minsheng Bank and Ping An Bank. Three months ago, the BCFT platform announced it processed about 20 billion yuan ($2.8 billion) of trades.
Most popular however, is the Digital Currency Electronic Payment (DCEP) infrastructure. China is developing the DCEP to serve as the country’s national digital currency. It’s pegged 1:1 to China’s national currency, the Chinese RenMinBi (RMB).
Chinese officials have argued that any digital currency ought to be issued from a central bank or government. According to them, Digital currencies or blockchain-based payment systems such as Facebook’s Libra for example will pose a threat to the economic sovereignty of China and other developing countries.
However, even though national officials openly share their reservations, China is certainly aware of the benefits that blockchain technology offers especially in finance. Yang Wang, a senior research fellow at the Fintech Institute of Renmin University of China, said DCEP will have the capacity to handle 220,000 transactions per second at its peak. According to Yang,
“In terms of technology, China’s digital currency excels, whether in its security level or speed, which means it will surpass competitors in user experience.”
One of the areas in finance China is currently integrating blockchain is in financial securities. Weimin Guo of the BoC recently revealed news that once DCEP is rolled out and functional, China will soon after provide a legal framework for Security Token Offerings (STOs). Some have predicted DCEP will be launched within the next 1-2 months.
STOs represent the integration of traditional financial securities and blockchain technolog as opposed to the creation of a new asset type — such as a utility token — as is commonly seen with the use of blockchain in fundraising, STOs feature conventional securities. These forms of financial instruments have been regulated for a considerable time. For example, The U.S. Securities and Exchange Commission (SEC), created in 1934.
The benefits of the blockchain are anticipated to bring significant advantages to the world’s securities systems, it however currently relies on trusted third-parties for settlements in securities transactions. The right blockchain system can remove this need, save costs of securities transactions, and drastically shorten settlement cycles.