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Central Bank of South Korea Deploys Blockchain in Bond Markets

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Ingle Jayashree

CBW -External Analyst

INDIA

Feb, 27 2020

Feb, 27 2020

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The Bank of Korea (BOK) which is the Central bank of South Korea has accelerated its efforts to build a blockchain-based system for bond markets.

The Korean stock market is one of the largest markets in the Asia region. As the current banking process is slow, expensive, vulnerable to cyber-attacks and overall inefficient, the Korean Central bank is trying to make its banking system more efficient and transparent by deploying blockchain technology to the system.   

The system would be developed collectively for the Bank of Korea, associate financial institutions and the Fair Trade Commission (FTC), which is South Korea’s financial regulator. The system would be useful to record the bond transactions efficiently and would be serving as the real-time payment trading system.

Local media reports state that the BOK will launch a blockchain bond system only after it clarifies the regulatory framework. It will also ascertain if the system is working without any pitfalls before the final launch.

Project Launch process began in 2019

South Korean Central Bank is following the footsteps of the World Bank which has successfully executed blockchain bond transactions in 2018.

The project has been piloted in 2019, by the bank of Korea (BOK).  The bank reportedly launched Proof of Concept (PoC) project in 2019 to shift the transaction records from the currently maintained Korea Securities Depository to the new blockchain-based system which will be accessible by the associates as well.

The blockchain bond pilot project will have separate nodes for the South Korean financial watchdog Korean Fair Trade Commission (FTC), Bank of Korea (BOK) and other associate financial Institutions.

The local authorities have confirmed that the South Korean financial authorities are testing and evaluating the blockchain-based system in terms of issuing the bonds to record transactions.

One of the authority confirmed:

“We are using Government Bonds to record securities and cash transactions distributed ledger and test whether a real-time simultaneous payment trading system is possible.”

Project on the Lines of World Bank and Commonwealth Bank of Australia which had deployed blockchains systems in recent years.

The Korean government being one of the largest market players in Asia, regularly issues debts, which are being purchased by foreign investors. The country has rapidly become a hub in the regional markets with the initiation of responsible bonds, such as green bonds. This step witnessed issuances of approximately $6 billion in June 2019, which surpassed China by $2 billion.

The Bank of Korea is said to be working on lines of World Bank. The World bank along with Commonwealth Bank of Australia had raised $108 million through the issuance of these bonds, which were run on a private version of the Ethereum blockchain. It was the first-ever bond that was created allocated, managed and transferred through its life-cycle using distributed ledger technology (DLT).


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Ingle Jayashree

CBW - External Analyst

INDIA

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