Chinese state-owned bank issues $600m onchain digital yuan bonds

A state-owned bank in China has issued one of the country’s first-ever commercial bonds on a blockchain.

Huaxia Bank distributed the bonds to customers paying exclusively in China’s central bank digital currency, or CBDC.

The bank issued the bonds, worth over $637 million, via its commercial shipping subsidiary Huaxia Financial Leasing, the firm said on its official social media channel, the Chinese newspaper Caixin reported.

“The whole issuance process was recorded on the blockchain network in real-time,” Huaxia said. “This has ensured that all transactions are immutable. And it will allow investors to check all relevant information at any time.”

The bank claims that using blockchain and the digital yuan in its bond issuance means it can eliminate the need for intermediaries, paving the way for more Chinese firms to launch blockchain-powered loans.

CBDCs are a digital form of a country’s fiat currency, issued and controlled by its central bank. The People’s Bank of China began its digital yuan pilot in April 2021.

In October, the PBoC claimed that cumulative digital yuan transactions had reached $2 trillion, with 26 cities in China now in the official CBDC pilot zone.

The central bank claims that 225 million people have opened personal digital wallets so far.

CBDCs are not without their critics, who argue that their issuance could spark the collapse of banking systems.

Huaxia did not disclose which blockchain network it had issued the bonds on.

However, most Chinese companies use private blockchains, mainly due to Beijing’s sweeping crackdown on crypto trading and Bitcoin mining.

A national first

The bank’s blockchain bonds are set to mature in three years and have a coupon rate, or annual yield, of 1.84%.

The bank added that its “national-first” move had helped revolutionise its book-building operations.

Book-building in the bond markets typically refers to a process in which banks gauge investor demand at various price points to determine the final interest rate and terms of their eventual bond issuance.

The bank said it had hoped to raise a minimum of $425 million through the issuance, but was prepared to issue a further $212 million in bonds it had been holding back should the bonds become oversubscribed.

In the end, demand proved so high that the firm was obliged to issue all of its bonds.

Unlike most existing and in-development CBDCs, the digital yuan does not use blockchain technology.

Huaxia trades on the Shanghai Stock Exchange and has a market capitalisation of around $15.7 billion.

Tim Alper is a news correspondent at DL News. Got a tip? Email at [e-mail].