Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Britain has moved closer to becoming the first G7 country to issue a sovereign bond on the blockchain, after the Treasury appointed a bank and law firm to handle a digital gilt pilot this year.
Treasury officials hope the appointment of HSBC and Ashurst to lead the project will deflect criticism that the UK is taking too long to issue a digital gilt.
The pilot will involve Britain issuing a government bond as a digital token on a blockchain or another distributed ledger, the shared computer systems that record transactions and ownership of cryptocurrencies and other tokenised assets.
Chancellor Rachel Reeves announced the plan for a digital gilt pilot in her Mansion House speech in November 2024 and invited applications to manage the project last October.
But the UK has since fallen behind others that have completed digital sovereign bond issues, including Hong Kong and Luxembourg, and frustration has been building about the Treasury’s lack of progress.
Mike Coombes, chief corporate affairs officer at technology provider PrimaryBid, said the fusion of digital assets with traditional capital markets infrastructure “is happening — the UK can either be part of that, be a standard setter . . . or it can be on the back foot”.
A digital gilt would help formalise the legal status of digital assets more broadly but also serve as a “statement of intent” by the UK to take more of a role in developing digital markets, he added.
Ousmène Jacques Mandeng, visiting fellow at the London School of Economics who advised on a tender for the digital gilt contract, wrote in the FT last month that the UK “now needs to press ahead with a decision on the tender and subsequent development”.
However, while several countries have issued digital bonds, a UK digital gilt would be the first issuance directly on a blockchain of tokenised treasury security by a member of the G7 group of advanced economies.
Lucy Rigby, City minister, said: “This is exactly the kind of financial innovation we need to keep the UK at the forefront of global capital markets.
“We want to attract investment and make the UK the best place to do business,” she said, adding that the digital gilt pilot would illustrate “how the UK can capitalise on this technology, deliver efficiencies and reduce costs for firms”.
The digital gilt pilot will be done in the Bank of England’s “digital sandbox”, which allows financial innovations to be tested under a more flexible legal framework.
John Allan, head of innovation and operations at the Investment Association, a trade body, said digital gilts would be attractive for investors by allowing instant settlement.
But he said they would require legislation and clarification of their tax treatment before they could become a full feature of UK debt markets.
“We’ve been following the digital gilt project very closely since 2023,” said Allan. “It’s certainly been a long time coming and we are very keen that it moves ahead and moves into a longer programme to become the way the government issues its debt.”
HSBC has handled more than $3.5bn of digital bonds issued on its Orion blockchain system for a range of clients, including countries, central banks, financial institutions and companies.
Last year the bank enabled a $1.3bn green bond issue by the Hong Kong government in one of the world’s biggest digital bond sales.
Patrick George, global head of markets and securities services at HSBC, said the lender was “delighted to be supporting the continued development of the gilt market, market innovation and the growth of the broader UK economy”.
