The United Kingdom (UK) plans to begin issuing digital gilts in the next two years as the government adopts blockchain technology to modernize its financial markets.
The government seeks to modernize financial markets by “tokenizing” government debt, enhancing trading efficiency, and reducing costs in the UK’s extensive debt market, which is preparing for a borrowing round estimated at £297 billion ($382 billion).
UK to Trial Digital Gilts Within Two Years, Marking Major Shift in Debt Issuance
According to a Bloomberg report, Chancellor Rachel Reeves is expected to announce a trial of digital gilt issuance during her Mansion House speech on Thursday, an occasion traditionally used to reveal financial industry support policies.
The announcement aligns with the new Labour government's goal of modernizing financial markets by "tokenizing" government debt on a blockchain, a system similar to that used by cryptocurrencies like Bitcoin.
The government hopes to improve trading speed and reduce costs by digitizing gilts. This will benefit the country's vast debt market as it prepares for a borrowing spree estimated at £297 billion ($382 billion), the second largest in UK history.
The previous Conservative government initially floated the plan to issue digital bonds. In 2022, former Treasury Minister John Glen indicated the department was considering the feasibility of digital debt issuance.
Now, the Treasury has begun formal preparations for digital gilt sales, with the Debt Management Office advising on the feasibility of using distributed ledger technology, as reported in its latest annual report.
With digital bonds still in the niche, UK officials are cautiously mapping out a phased approach, with initial trials planned before large-scale issuance. Globally, digital bond issuance is also gaining traction.
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Earlier this year, Slovenia became the first eurozone country to issue sovereign digital debt, joining global institutions like the European Investment Bank and the World Bank that have tested blockchain-based issuance.
The UK's move aligns with guidance from the Association for Financial Markets in Europe, which this year recommended that governments take incremental steps toward digital debt-raising. This proposed phased approach would allow governments to assess blockchain’s impact on their markets before committing to full-scale implementation.
The association previously advocated for a phased adoption of blockchain in debt issuance, beginning with experimental trials and potentially scaling up to larger sales within the next few years.
UK City Minister Advocates Blockchain-Based Gilts Amid DMO Caution on Feasibility
On October 2, Tulip Siddiq, the United Kingdom's city minister, advocated for issuing blockchain-based gilts, a government bond distributed via blockchain technology.
Siddiq's proposal seeks to advance the UK's position in digital finance by introducing "digital gilts," even as the UK's Debt Management Office (DMO) has voiced concerns over the move's feasibility.
Proponents of blockchain gilts argue that adopting this technology could streamline bond issuance, improve market transparency, and position the UK as a leader in digital assets.
The shift would remove intermediaries, such as registrars, in the bond-issuance process, thereby enhancing efficiency and reducing costs.
Additionally, supporters claim that tracking ownership through blockchain could modernize UK financial markets and bolster global credibility.
However, the DMO, responsible for issuing and managing government debt, has expressed caution, citing technical and regulatory challenges in shifting to blockchain.
The Financial Times reported that the DMO's primary focus remains on maintaining cost efficiency and ensuring smooth operation in the gilt market.
The post UK to Launch Digital Gilts Trial Within Two Years appeared first on Cryptonews.
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