The UK is preparing to issue its first-ever “digital gilt,” a government bond recorded using blockchain technology, but what exactly does that mean for investors, and how would you buy one?
The UK treasury has appointed HSBC (HSBA.L) as the platform provider for the pilot issuance of Britain’s first digital gilt instrument (DIGIT), marking a significant step in the government’s effort to bring sovereign debt onto distributed ledger infrastructure.
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The pilot, which will also involve law firm Ashurst as legal and regulatory adviser, is expected to run inside the Bank of England’s “digital sandbox,” allowing the tokenised government bond to be tested under relaxed regulatory conditions before any permanent market structure changes are introduced.
Announcing the move on LinkedIn, economic secretary to the treasury and city minister Lucy Rigby said: “Today we’ve taken an important step towards issuing the UK’s first digital gilt instrument (DIGIT).” She confirmed that HSBC (HSBA.L) had been appointed following a competitive tender process, with Ashurst advising on legal and regulatory matters.
Rigby said DIGIT would use HSBC’s Orion platform to test how distributed ledger technology (DLT) can be deployed in the gilt market, with the potential to “enable faster and more efficient transactions, reduce costs for firms, and enhance security across our financial system.”
HSBC (HSBA.L) is not new to the space. The banking giant has already orchestrated more than $3.5bn in digital bond issuances via Orion, including Hong Kong’s $1.3bn green bond, one of the largest tokenised debt sales to date. The UK is positioning itself to become the first G7 nation to issue a sovereign digital gilt through a formal government-led blockchain pilot.
A digital gilt remains a UK government bond backed by the state. The difference lies in how it is issued, recorded and settled. Instead of relying entirely on traditional clearing and settlement infrastructure, ownership and transfers would be recorded, and potentially settled, using distributed ledger technology, or blockchain infrastructure.
For investors, however, access is unlikely to change dramatically.
Elisenda Fabrega, general counsel at tokenisation platform Brickken, told Yahoo Finance UK: “Investors would buy digital gilts through regulated financial intermediaries, in the same way they currently access traditional government bonds.”
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She explained that the innovation is primarily in the post-trade layer. “The difference lies in the post-trade and settlement setup: ownership and transfers would be recorded and/or settled using distributed ledger infrastructure, potentially alongside existing market infrastructure depending on the final design.”
