The German state-owned bank Kreditanstalt für Wiederaufbau (KfW) has announced plans to issue its first blockchain-based digital bonds.
These digital bonds will adhere to the regulations outlined in the German Electronic Securities Act (eWpG) and be categorized as crypto securities, according to an official press release issued on May 6.
KfW Bank Partners With German Banks to Issue Blockchain-based Digital Bonds
Digital bonds use blockchain technology to store the bond’s details and ownership on a secure and transparent digital ledger, which enables real-time processing of the issuance and trading activities. However, despite the employment of the latest blockchain technology, KfW said that the settlement of financial transactions connected to these bonds would be done through traditional payment systems. According to the announcement, the bond will be completed in the summer of 2024.
KfW has some important partners involved in this project. Union Investment is a key anchor investor for the transaction, and its knowledge of crypto securities is crucial in preparing the transaction. Furthermore, a group of bookrunners will handle the issuance process and interact with investors; this group will consist of DZ Bank, Deutsche Bank, LBBW, and Bankhaus Metzler. The bond will also have DZ Bank as the collective registered holder, with Cashlink Technologies serving as the crypto securities registrar.
Tim Armbruster, KfW Treasurer, said: “The initial goal on the road to the digitalization of refinancing is to learn and thereby identify the potential for improvement.”
Context Within Global Trends
The announcement by KfW is one of the series of developments among global financial institutions to infuse blockchain technology into traditional financial operations. It is important to know that KfW Bank is not the first bank to implement digital bonds. In 2019, the Bank of China issued 20 billion Renminbi ($2.8 billion) in blockchain-based bonds for small and micro-sized blockchain companies. Santander also announced the world’s first end-to-end blockchain bond in the same year.
In addition, Societe Generale, France’s third-largest bank, and HSBC also exploited blockchain technology for such ambitions in December last year. Societe Generale issued the first green bond on Ethereum, while HSBC played a role in the issuance and storage of digital bonds and introduced a Gold token service for retailers in Hong Kong.
KfW stated in the announcement that the digital bond will not be offered or sold in the U.S. due to market regulatory restrictions.
