- The new government bonds will be auctioned by the Oesterreichische Kontrollbank (OeKB) next Tuesday.
- Ethereum blockchain platform will be used to extract data about bonds from the government’s Auction Procedure for Federal Bonds.
- Investors will wait until 2023 or 2028 to see returns for these long term bonds.
The government of Austria plans to use the Ethereum public blockchain when it will issue the next set of government bonds. The Austrian treasury will issue bonds worth €1.15 billion ($1.35 billion) during an auction slated for October 2, 2018.
Bonds To Be Auctioned on Behalf of Austrian Treasury
The Kleine Zeitung local news outlet reported that one of Australia’s leading banks with assets worth over $26 billion, Oesterreichische Kontrollbank (OeKB) will operate a live blockchain-based notarization service during the auction where it will issue some the bonds on behalf of the Austrian Treasury.
Austria’s Minister for Finance Hartwig Löger explained that they chose to use the blockchain technology as they believe it “forms a focus on economic policy,” before adding:
“Through setting up the FinTech Advisory Council at the Ministry of Finance, we are developing strategies enabling Austria to benefit optimally from these developments.”
According to OeKB, this will be the first time the government will be using a blockchain-based notarization service as part of Austria’s Federal Bond Auction process.
Buying bonds is a form of investment where you loan the government money with an agreement that the issuer (The Austrian Government in this case) agrees to repay the debt over an agreed period with some form of interest. The settlement period, in this case, runs between 2023 and 2028; Austria has issued a long-term bond which will become a sustained test as a use case for the blockchain technology.
Enhanced Security and Cost-effectiveness
Ethereum will extract data about the bonds from the Auction procedure for Federal Bonds for the Republic of Austria- the Austrian Direct Auction System (ADAS) after which it will thereafter notarize the bonds as a HASH value in Ethereum’s public blockchain. The Republic of Austria has guaranteed the bonds and it will list them at the Luxembourg Stock Exchange lists them.
The Kleine Zeitung publication has explained that using blockchain technology, in this case, will not go as far as issuing tokenized bonds that will act as a parallel to existing paper or digital systems. The managing director at the Austrian Treasury Markus Stix told the publication the government chose to use the publication to benefit from its main benefits that include security and cost-effectiveness. Markus explained:
“This added security contributes to achieving a high level of confidence in the auction process for Austrian government bonds and strengthens Austria’s good standing in the market, which indirectly also has the capacity to contribute to favorable financing costs.”
