The Philippines Bureau of the Treasury Will Sell Tokenized Bonds For the First Time
by Oskar Trotman
On Monday, November 20, the Philippines Bureau of the Treasury will offer one-year tokenized treasury bonds worth 10 billion pesos, equal to $179 million. The sale will replace the traditional bonds auction and inaugurate tokenized bonds in the Philippines.
The Bureau of Treasury hired two state-owned institutions, the Land Bank of the Philippines and the Development Bank of the Philippines, to issue the securities. The interest rate is still not announced but will be made public on the issuance date.
The sale targets institutional buyers, and the bonds will be offered in minimum denominations of 10 million pesos or $179,000 and rising in increments of a million pesos. The maturation of the one-year securities will arrive in November 2024.
The bonds will be issued as digital tokens, maintained in the Bureau of the Treasury’s Distributed Ledger Technology (DLT) Registry. However, the DLT registry will not be the primary ledger, it will run in parallel with the official bond record at the National Registry of Scripless Securities (NRoSS).
According to the Bureau of Treasury, if this pilot project is successful, the tokenization of retail Treasury bonds will be the next step, followed by a transition from targeting institutional buyers to small creditors.
“We will continue to study the technology and test how far we can take it,” said Deputy Treasurer Erwin Sta.
Joining an Emerging Asian Trend
The departure from conventional annual bond issuance to tokenized results from the desire to keep up with emerging Asian trends. The Philippines is not the first Asian country to issue tokenized bonds. It was previously done in both Singapore and Hong Kong.
However, the Philippines have limited previous experience with blockchain usage for government bonds after they used a blockchain solution in 2020 as part of an app to facilitate the purchase of retail treasury bonds (RTB) for customers.
Historically, governments have always used the bond market as a funding source. It has provided the means to fund various infrastructure or social projects and plug gaps in the budget while investors receive a safe and steady income. However, it was not a perfect process, often hampered by high transaction fees and prolonged settlement periods, discouraging many investors from entering the bond market.
Revolutionizing the Bond Market
The emergence of blockchain technology can revitalize the bond market through tokenized bonds, a digital representation of a bond asset on a blockchain network. These digital versions of government-issued securities can be traded effectively and transparently, plus they are liquid. Liquidity was often not an option for conventional bonds, sold in large denominations and at specific exchanges.
On the other hand, tokenized bonds can be purchased on blockchain-based platforms, accessible to a large pool of investors, benefiting from enhanced transparency without intermediaries charging extra fees. Security is another important component of tokenized bonds, with blockchain encryption preventing fraudulent activity and bolstering investor confidence.
It’s logical to expect other countries to follow the Philippines’ example and make tokenized bonds a staple offering.