Central Bank of South Korea Deploys Blockchain in Bond Markets


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).

Jayashree Ingle
CBW - External Analyst
INDIA