Hong Kong is actively embracing blockchain technology to revolutionize its financial markets, with a particular emphasis on tokenization and its potential benefits.
In a recent report by the Hong Kong Monetary Association (HKMA), strong interest was expressed in expanding the boundaries of tokenized bonds to make them a core financial offering. The 24-page report highlights the advantages of using blockchain for bond issuance while acknowledging associated risks.
Hong Kong has already taken steps towards issuing tokenized bonds through the Evergreen project, which included an offering of HKD 800 million (USD 101 million) on the Goldman Sachs Digital Asset platform.
The report addresses the challenges faced by the Evergreen project in seeking efficient processes for issuing tokenized bonds. Eddie Yue, the CEO of HKMA, noted that despite the obstacles encountered by the Evergreen project, he emphasized the potential of Distributed Ledger Technology (DLT) to enhance efficiency, liquidity, and transparency in bond markets.
The report suggests that future bond issuance platforms should focus on developing compatible systems. HKMA emphasizes that compatibility will help avoid fragmentation, and integration with existing bond issuance systems will lead to higher adoption rates.
HKMA believes that the Central Depository Institution (CDI) will play a crucial role in achieving compatibility between blockchain-based tokenized bond issuance platforms and traditional systems, citing previous integration efforts by SIX Digital Exchange (SDX).
To generate more interest, the report proposes expanding blockchain-based tokenized bond issuance beyond the Hong Kong Dollar (HKD) and including other currencies such as stablecoins and tokens issued by commercial banks. Standardizing documentation procedures, real-time impact tracking, and exploring potential retail use cases are also suggested to drive adoption.
Eddie Yue stated, "The designs and policy considerations laid out in this report take into account the unique characteristics of Hong Kong's financial market and recent international developments. We encourage market participants to draw inspiration from our experience in considering the issuance of tokenized bonds in Hong Kong."