Hong Kong government issues first tokenised green bond

HKMA issued HKD tokens, which were exchanged for fiat money provided by banks.

The Hong Kong government has successfully issued its first tokenised green bond.

The one-year Hong Kong dollar-denominated tokenised green bond is the first to be governed by Hong Kong law, according to Linklaters, who advised the issuance. 

At first lodged by a paper note with the Central Moneymakers Unit (CMU) of the HKMA, the beneficial interest is then recorded on settlement in the tokenised securities account on a distributed ledger technology (DLT)-based digital assets platform. This platform was provided by a third party and functioned as an extension of the CMU, according to Linklaters.

In order to make the green bond work, the Hong Kong Monetary Authority (HKMA) minted Hong Kong dollar cash tokens. These were then exchanged for fiat cash provided by the banks to facilitate on-platform settlement of primary issuance and secondary trading, as well as coupon payment and maturity redemption. The cash tokens represent a claim for Hong Kong dollar fiat against the HKMA. 

ALSO READ: HK banking system 'resilient’ amidst the Credit Suisse fallout

The HKMA reportedly hopes to encourage other issuers to consider tokenised issuances, and will be publishing a white paper to guide other issuers. 

“In addition to this white paper, we are expecting more regulatory developments on tokenised securities this year, as the SFC's Julia Leung promised to issue updated SFC guidance on how security token offerings should be treated in a speech in late 2022,” Linklatere said in the press announcement of the bond issuance.