Bloomberg reported May 2nd that the City Council of Berkeley voted unanimously this week to task the city manager with evaluating the potential benefits of putting municipal bonds on blockchain.
Vice Mayor Ben Bartlett believes that digitizing bonds on blockchain could democratize access to municipal bond investing. Bartlett believes blockchain could enable the issuing of digital ‘microbonds’ that would cost less than the $5000 usually required to invest.
According to Bloomberg, Vice Mayor Bartlett told the meeting that microbonds on blockchain are “meant to get around Wall Street.”
Councilwoman Susan Wengraf wondered whether the issuing of microbonds required the creation of a blockchain, which some have called “a slow, expensive database”:
“If we’re doing mini muni bonds, which I think is a great idea, isn’t blockchain overkill?”
Blockchain and other types of distributed ledger technologies are now being considered around the world by governments and businesses as a potential way to automate tedious processes, reduce costs and increase security in the administration of data and records. Blockchains record transactions “immutably” (permanently) by “hashing” (encrypting) them into a digital ledger very difficult to hack.
By automating the management of interest payments and principals as well as the coordination of revenues coming in from taxes, tolls and leases, blockchains could conceivably reduce the overall costs involved in municipal bond management.
Municipal bond investors lend money to governments in return for regular interest payments and a guaranteed return of their principal investment at the end of a fixed terms.