The United Kingdom is set to introduce digital gilts within the next two years. This initiative aims to modernize the country’s financial markets by adopting blockchain technology. By “tokenizing” government debt, the government hopes to improve trading efficiency and reduce costs in the UK’s extensive debt market. This move comes as the country prepares for a borrowing round of £297 billion ($382 billion).
Digital Gilt Trial Set to Begin Soon
Chancellor Rachel Reeves is expected to announce a trial of digital gilt issuance in her upcoming Mansion House speech. This event traditionally highlights key policies for the financial industry. The new Labour government is keen to modernize the financial system by tokenizing government debt using blockchain. This technology mirrors the one used by cryptocurrencies such as Bitcoin.
The government believes digital gilts will speed up trading and reduce costs. This will benefit the UK’s vast debt market, especially during its major borrowing round. This initiative stems from the Conservative government’s earlier proposal to issue digital bonds. In 2022, former Treasury Minister John Glen indicated that the Treasury was exploring the feasibility of digital debt issuance.
Treasury Makes Formal Plans for Digital Gilt Sales
The Treasury has now begun formal preparations for digital gilt sales. The Debt Management Office (DMO) has been tasked with evaluating the feasibility of using distributed ledger technology. This step follows the DMO’s inclusion of blockchain in its latest annual report.
Despite global interest in digital bonds, the UK is moving cautiously. Officials are planning initial trials before any large-scale issuance. Digital bond issuance is gaining traction worldwide. Slovenia became the first EU country to issue a sovereign digital bond earlier this year. Institutions like the European Investment Bank and the World Bank have also explored blockchain-based debt issuance.
UK Follows Global Advice on Digital Debt Issuance
The UK’s cautious approach aligns with recommendations from the Association for Financial Markets in Europe. The association has advised governments to start with small-scale experiments. This phased approach allows governments to assess blockchain’s impact on their markets before committing to full-scale digital debt issuance.
Support for Blockchain-Based Gilts from City Minister Siddiq
On October 2, UK City Minister Tulip Siddiq voiced support for blockchain-based digital gilts. She believes digital gilts could improve the UK’s position in digital finance. Siddiq proposes issuing government bonds through blockchain technology, despite concerns from the DMO about feasibility.
Proponents argue that blockchain could streamline bond issuance, increase market transparency, and reduce costs. By removing intermediaries like registrars, the process would become more efficient. Additionally, tracking ownership through blockchain could modernize UK financial markets and enhance their global credibility.
However, the DMO remains cautious, highlighting technical and regulatory challenges. The primary goal of the DMO is to maintain cost efficiency and smooth operations within the gilt market
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