Tokenization Could Improve Bond Market Efficiency, Hong Kong Regulator Says

Tokenization, where real-world assets are converted into blockchain-based tokens, has the potential to enhance efficiency, liquidity and transparency in bond markets, the Hong Kong Monetary Authority (HKMA) said in a Thursday report.

The comment follows a successful $100 million tokenized green bond issuance in February by the central bank in collaboration with the local government.

Although it is but one application of the technologies that underlie crypto, tokenization is viewed as something that could transform financial and non-financial infrastructure and markets.

"The issuance demonstrated the possibility of deploying distributed ledger technology (DLT) to a real capital markets transaction under the existing Hong Kong legal framework. It also showed the potential in DLT to enhance efficiency, liquidity and transparency in bond markets," the report said.

The bond has created a blueprint for "potential similar issuances in Hong Kong," the report said, adding that the bank intends to explore further applications, address issues of fragmentation across platforms and systems, and enhance Hong Kong’s legal and regulatory framework to accommodate more tokenization in the bond market.

"The HKMA in coordination with the Government will work with the industry to conduct further tokenized issuance(s) to advance development on this front," a press statement published alongside the report said.

The HKMA has been exploring green bond tokenization since at least 2021.

Read more: Hong Kong Successfully Offered Inaugural $100M Tokenized Green Bond