The government of the world’s smallest countries has presented a prototype of a blockchain-based savings bond system.
The government of Palau, an Asia-Pacific island nation with a population of just 18,000, has unveiled the prototype of a blockchain-based savings bond system, dubbed “Palau Invest.”
The prototype’s public debut follows the announcement just under three months ago that Japan-headquartered financial technology company Soramitsu was working on a system to issue, manage and operate savings bonds using blockchain technology in an initiative supported by funding from the Japanese government.
In a new announcement this week, Soramitsu says the prototype of the system was revealed “to demonstrate to the Palau public how digital savings bonds can work.” It is now launched, so Palau residents can learn more about the system and educate themselves ahead of obligations. are issued by the Palau Ministry of Finance.
Once the bond issuance criteria are finalized by the Ministry of Finance and approved by the Palau government, the digital savings bonds will be issued and “any Palau citizen will be able to purchase them from the comfort of their phone via a mobile application” , according to the announcement, which states that “digital savings bonds provide a simple way for Palau citizens to invest in their own country while reaping the benefits of those investments.”
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Keep money local
Tourism is the main driver of the economy of Palau, whose official currency is the US dollar in an archipelago made up of around 340 islands, islets and atolls (only eight of which are inhabited). It has been 30 years since Palau, which hosted a “Blockchain Summit” in August 2023, became independent under a “Compact of Free Association” with the United States.
“Although the U.S. dollar is the circulating currency in Palau and U.S. banks (such as those in Hawaii and Guam) absorb residents’ funds as deposits, these funds are used on the U.S. mainland rather than for economic growth or infrastructure in Palau,” Soramitsu explained in his initial mission announcement. “To address this issue, the Palau Ministry of Finance plans to issue savings bonds to diversify domestic financing methods and use the absorbed funds for economic growth and infrastructure investments such as bridges , roads and public facilities, with the support of Soramitsu technology.”
In the new announcement, Palau’s Minister of Finance describes the launch of the prototype as “an important milestone in the ministry’s broader efforts to promote financial inclusion and innovation.”
“One of our goals at the Ministry of Finance has always been to expand access to different financial tools and enable more citizens to invest in the development of our country,” says Kaleb Udui Jr.
Palau President Surangel Whipps Jr also spoke at a prototype launch event, saying “the importance of this moment extends beyond creating a new financial product and “a new digital platform” and that the initiative would make it possible to finance “key projects… with capital of national origin.
“These projects are not only critical to infrastructure, but they also generate benefits that ripple across and within our local economy,” he said. “By investing in these areas, we stimulate job creation, improve business opportunities and foster a more dynamic economic environment. This initiative represents a broader effort by Palau to take greater control of its financial future – one in which we determine the direction of our development and invest directly in our country’s growth.
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The advantages of blockchain
Soramitsu, headquartered in Tokyo, said in July that it would use blockchain technology Hyperledger Iroha – distributed ledger software from the Hyperledger Foundation, part of the LF Decentralized Trust – for the Palau initiative.
Its new announcement describes the technology as “best in class” and “more than capable of handling the transactional needs of everyone in Palau.”
The company presented the benefits of using blockchain for a bond issuance and management system, including reduced costs and operational expenses; and prevention of counterfeiting, forgery and “identity theft,” which means enhanced security.
Soramitsu has many other interests in the region, with its July announcement saying the company would also work with the Central Bank of Papua New Guinea to conduct a central bank digital currency (CBDC) proof of concept and “aim” build a common platform for the entire Pacific Islands region using Soramitsu’s blockchain technology.”
“As Pacific island nations each have relatively small populations and economies, the burden of establishing and maintaining information systems infrastructure is significant,” he said at the time. “Therefore, Soramitsu aims to develop an architecture that enables a more cost-effective and efficient introduction of financial instruments such as CBDCs and savings bonds by building a common platform using secure, permissionless blockchain technology, powered by Hyperledger Iroha.”
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“Revolutionary” financial management
Japanese government funding for the Palau initiative comes from a 2023 grant from the Ministry of Economy, Trade and Industry (METI) for co-creation projects geared towards the future of the Global South ( indirect subsidy project linked to the investigation into the deployment of infrastructure abroad by the Japanese). Supplementary business budget.
“At Soramitsu, our mission has always been to harness cutting-edge blockchain technology to create meaningful change in global financial systems,” Soramitsu Group CEO and co-founder Dr. Makoto Takemiya said this week, describing the Palau project as “a testimony to how we can apply decentralized technology to bring efficiency, security and transparency to national economies.
“Working closely with Palau’s Ministry of Finance and Japan’s METI, we are revolutionizing the way countries manage their finances and taking meaningful steps to improve affordability and promote citizen well-being,” Takemiya added.
The World Bank got the ball rolling on “blockchain bonds” with the launch of bond-i – the first bond to be created, allocated, transferred and managed throughout its lifecycle using ledger technology distributed (DLT) – in 2018.
Hong Kong authorities successfully announced the issuance of tokenized green bonds just over 18 months ago and, in August 2023, released a report outlining potential next steps to promote wider use of the technology tokenization for bonds. The Philippine government announced its first tokenized Treasury bond offering in November 2023, saying it wanted to “provide proof of concept for broader use of DLT in the government bond market.” Just over five months ago, an urban authority in the US state of Massachusetts broke new ground in the US public sector’s use of innovative technology by launching a municipal bond issue using blockchain. The Quincy City Authority issued $10 million (about £8 million) worth of tax-exempt bonds leveraging the technology, saying it had taken “a first step in transforming US municipal debt markets.
