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Sovereign issuers explore digital options to raise funds

Summary:
Philip Moore in this OMFIF piece points to how some governments are going the digital route to raise funds: When it launched its first digital bond on a public blockchain in April, the European Investment Bank provided a glimpse into how primary markets for sovereign and supranational borrowers may function in years to come. Arranged by Goldman Sachs, Santander and Société Générale, the €100m two-year bond was launched in partnership with Banque de France as part of its experiment on the use of central bank digital currencies for settling bonds. Panellists at a recent OMFIF meeting on sovereign debt agreed that this pilot transaction had been a success. ‘It went very smoothly,’ said Christian Kopf, head of fixed income at Union Investment Group, which participated in the deal. ‘We

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Philip Moore in this OMFIF piece points to how some governments are going the digital route to raise funds:

When it launched its first digital bond on a public blockchain in April, the European Investment Bank provided a glimpse into how primary markets for sovereign and supranational borrowers may function in years to come. Arranged by Goldman Sachs, Santander and Société Générale, the €100m two-year bond was launched in partnership with Banque de France as part of its experiment on the use of central bank digital currencies for settling bonds.

Panellists at a recent OMFIF meeting on sovereign debt agreed that this pilot transaction had been a success. ‘It went very smoothly,’ said Christian Kopf, head of fixed income at Union Investment Group, which participated in the deal. ‘We went through the entire process at Union and settled without any problem. It’s a promising development, although I’m still unsure about how the issue of counterparty risk will be dealt with in the secondary market.’

The Banque de France followed up at the end of June with a simulated sale of a fungible Treasury bond (or Obligations Assimilables du Trésor) on a permissioned blockchain. The experiment was followed by several secondary market operations performed on these bonds. Cash settlements were simulated by a CBDC issued on the blockchain. The experiment required the development and deployment of smart contracts so that the Banque de France could issue and control the circulation of CBDC tokens and ensure that their transfer takes place simultaneously with the delivery of the OATs into the investors’ portfolio.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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