The UK government has announced that the issuance of Gilts will be tested on distributed ledger technology (DLT) in a forthcoming pilot.
If the UK issues government bonds using blockchain technology, this could transform how public authorities issue and manage debt offerings.
In a speech delivered at Mansion House yesterday (November 14), Chancellor of the Exchequer Rachel Reeves stated:
“We are supporting innovation in the financial services sector by launching a pilot to deliver a Digital Gilt Instrument referred to as DIGIT using distributed ledger technology.”
While details are few, technology to issue digital bonds has already been put to use in other jurisdictions.
Kelly Mathieson, Chief Business Development Officer at Digital Asset, shared a comment with CI, stating that the Chancellor is right to recognize the UK must modernise the tech that underpins its £2.5 trillion Gilt market.
Rachel Reeves is right to recognise that the UK must modernise the technology underpinning the 2.5 trillion GBP Gilt market to make sure it’s not left behind. There’s a lot we can learn from the work already being done in other jurisdictions. Most recently, Euroclear and the World Gold Council successfully piloted the tokenization of Gilts, Eurobonds and Gold on blockchain. Connecting these assets to a digital infrastructure demonstrates that tokenizing Gilts can enhance collateral mobility, improve liquidity, and increase transactional efficiency. The 2022 Gilt crisis significantly impacted market liquidity and the ability of institutional investors to meet margin calls. Gilts were sold in high volume, widening margin calls and creating a negative spiral. Digitised Gilts would have provided real-time collateral mobility to meet intraday margin calls, which would have significantly mitigated the need for mass market selling, which resulted in the Gilts crisis.”
She said the UK must make the right technology decisions to avoid the challenges of the legacy system.
“The UK and the DMO now need to make the right technology choices to avoid replicating the operational challenges of the legacy systems used today. The UK Gilt market needs technology rails that meet this high regulatory bar, make the market more efficient and liquid, and ensure privacy. Emerging networks can work within the carefully constructed legal frameworks already in place to make the financial system more efficient and reduce risk.”
The Chancellor also highlighted the five priority growth opportunities for the UK:
- Fintech
- Sustainable finance
- Asset management and wholesale services
- Insurance and reinsurance
- Capital markets
Fintech industry insiders will appreciate the shout-out to the nascent industry, which is key for the UK to maintain its status as a global financial hub.