The Hong Kong Monetary Authority (HKMA) said in a research published recently that tokenization, the process of turning real-world assets into tokens based on blockchain, has the potential to improve bond markets’ efficiency, liquidity, and transparency.
The remark followed the central bank’s and the local government’s successful $100 million tokenized green bond sale in February.
Tokenization is thought to have the potential to drastically change both financial and non-financial markets and infrastructure, despite the fact that it is only one application of the technology that underlie crypto.The issuance proved that, within the confines of Hong Kong’s current legal system, distributed ledger technology (DLT) could be applied to a real capital markets transaction.
Additionally, it demonstrated how DLT could improve bond markets’ efficiency, liquidity, and transparency, according to the research.
The report noted that the bond has served as a model for “potentially similar issuances in Hong Kong,” and that the bank plans to investigate additional applications, address problems with fragmentation across platforms and systems, and improve Hong Kong’s legal and regulatory framework to support increased tokenization in the bond market.
In a press release that was included with the study, it was stated that “the HKMA, in coordination with the Government, will work with the industry to conduct further tokenized issuance(s) to advance development on this front.”. Since at least 2021, the HKMA has investigated the possibility of tokenizing green bonds.