Israel uses blockchain to issue digital bonds

The Israeli Ministry of Finance and the Tel Aviv Stock Exchange (TASE) have announced a collaborative study to investigate the feasibility of issuing government bonds via distributed ledger technology (DLT).

Yali Rothenberg, the country’s attorney general, revealed that the move to explore the use of DLT is to open the nations to “new opportunities for issuing and managing sovereign debt.” At the moment, TASE and the Ministry of Finance have set up a joint team to test a proof-of-concept for the new company.

Titled Project Eden, the effort will see Israeli DLT infrastructure company Fireblocks play a critical supporting role in the study. According to the announcement, multi-cloud services provider VMware will also take part in the study, having previously had a stint in the Bank of Israel’s digital shekel pilot at the start of the year.

TASE and the Ministry of Finance are enthusiastic that issuing bonds on DLT is the right step for the country’s financial sector following the recent technological developments in Web 3. Both institutions noted that the move has the potential to promote “material and advanced change” in securities markets.

“At the Treasury Department, we closely monitor the prominent technological developments affecting capital markets around the world, including blockchain,” said Gil Cohen, Senior Deputy Accountant General and head of the Financing Division.

“We are now taking the next big step of investigating the issuance of sovereign bonds on the blockchain, a step that has the potential to create a more advanced and accessible capital market that will streamline the management of sovereign debt,” he added.

The process of raising and managing sovereign debt is typically tedious, characterized by layers of local and international parties while strict regulatory control further complicates the whole process. Some experts believe that using DLT can reduce costs and improve the transparency and efficiency of the process.

DLT and Israel are a match made in heaven

In the Middle East, Israel has emerged as one of the strongest users of DLT technology, incorporating the technology into its governmental processes. The largest single deployment of DLT is developing a central bank digital currency (CBDC), which the Bank of Israel is currently testing.

So far, two large tests have been carried out, both of which are primarily based on DLT. The first relied on the use of smart contracts, while the second focused on how to protect the identity of users using DLT.

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