The UK Treasury has decided to launch a trial program for digital government bonds, the country's first tokenized government bonds, using HSBC's Orion blockchain technology $HSBA (-4,27%).
Officials see the trial as a way to modernize the government bond market by using blockchain technology to reduce costs and speed up settlement.
》How the pilot project for digital government bonds will work《
Under the pilot, the UK will issue a digital government bond instrument called DIGIT on HSBC's approved Orion platform. The UK will issue, distribute and settle the bond on a blockchain within a regulatory sandbox overseen by the Financial Conduct Authority.
The Treasury wants to test shorter settlement times than in the regular government bond market, where transactions are usually settled within one or two days. By tokenizing government bonds, officials hope to reduce operational risk, improve transparency for investors and simplify the transfer of bonds between market participants.
》Why the UK chose HSBC's Orion platform《
HSBC's Orion platform already supports the digital issuance of bonds for governments, central banks and large corporates around the world. According to HSBC, Orion has processed over $3.5 billion worth of digital bonds, including the European Investment Bank's first sterling digital bond and a $1.3 billion green bond for Hong Kong.
UK officials selected Orion as the technology foundation for DIGIT following a tender process that followed earlier public consultations on digital government bonds in 2023 and 2024. The decision aims to build on HSBC's previous work in tokenization while running the pilot in a controlled, permissioned environment that complies with UK debt management rules.
Chancellor of the Exchequer Rachel Reeves originally unveiled plans for a trial run of digital government bonds in a speech at Mansion House in 2024, with a two-year timeframe in mind for the launch. Since then, the UK has fallen behind countries such as Hong Kong and Luxembourg, which have already completed the sale of digital government bonds.
With the HSBC deal, the UK now joins the top markets exploring blockchain for public debt, and if the test project is successful, some analysts predict it will overtake other G7 countries. Market organizations welcome the test, but warn that lawmakers need to update legislation, tax laws and settlement procedures before digital government bonds become a normal issue.