- European Investment Bank (EIB) spearheads market developments in the digitalization of capital markets
- The EUR 100m 2-year bond, placed with key market investors, represents the market’s first multi‑dealer led, primary issuance of digitally native tokens using public blockchain technology
- Project selected by Banque de France as part of its Central Bank Digital Currency (CBDC) sphere
- Similar to the EIB’s role in green bonds or risk free rates, the new digital bond issuance may pave the way for market players to adopt blockchain technology for the issuance of financial securities
The EIB launched a digital bond issuance on a blockchain platform, deploying this distributed ledger technology for the registration and settlement of digital bonds, in collaboration with Goldman Sachs, Santander and Societe Generale.
In a partnership with Banque de France, the payment of the issue monies from the underwriters to the EIB has been represented on the blockchain in the form of CBDC.
The EIB believes that the digitalization of capital markets may bring benefits to market participants in the coming years, including a reduction of intermediaries and fixed costs, better market transparency through an increased capacity to see trading flows and identity asset owners, as well as a much faster settlement speed.
Vice president Mourinho Félix from the European Investment Bank (EIB) said in a statement: “As a global leader in the green and sustainability bond markets, the EIB is clearly well‑placed to lead the way now in the issuance of digital bonds on blockchain. These digital bonds will play a role in giving the Bank a quicker and more streamlined access to alternative sources of finance to boost finance for projects across the globe.”
Christoph Hock, head of Multi-Asset Trading at Union Investment, said in a statement: “The close internal teamwork and the cooperation with DZ Bank as a depositary, the EIB and the joint lead managers were key for us to realize this deal in a very short period of time.”
Richard Gnodde, CEO of Goldman Sachs International, said in a statement: “This is an important step in the adoption of this innovative technology and the potential efficiencies that can be derived across the life cycle of the debt issuance.”
Blockchain is a digital and distributed ledger of transactions using advanced cryptographic techniques and the contribution of a network of participants to jointly validate the said transactions by blocks in an ordered and immutable sequence (hence the name ‘Blockchain’). This combination of features primarily aims at providing enhanced security and operational efficiency.
This transaction consists of the issuance by the EIB of a series of bond tokens on a blockchain, where investors purchase and pay for the security tokens using traditional fiat. The Joint Lead Managers will then settle the underwriting against the issuer using a representation of central money, the Central Bank Digital Currency (CBDC). The principal is expected to be repaid in commercial fiat at maturity. The transaction will use Ethereum, a public blockchain protocol.