The UK’s HM Treasury has confirmed plans to run a pilot for the issuance of digital gilts, UK government bonds, following leaked news earlier this week. The previous Conservative government had also planned to organize a pilot. It’s seen as an important step for UK capital markets, particularly as the UK has launched a Digital Securities Sandbox for DLT and tokenization pilots.
The UK could benefit more than other jurisdictions. One of the killer apps for blockchain in capital markets is repurchase agreements or repos, which involve exchanging cash for gilts. This allows banks and institutions to either lend excess liquidity or borrow it if they are short.
Conventional repos involve delayed securities settlement, which means repo duration is typically overnight. By contrast, blockchain supports instant settlement enabling intraday repo. The ability to manage liquidity for hours at a time is very attractive to banks and other institutions.
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