Afghanistan, Tunisia To Issue Sovereign Bonds In Bitcoin, Bright Future Ahead (#GotBitcoin?)
Afghanistan and Tunisia are planning to issue sovereign bonds in bitcoin to fund infrastructural developments, reported Asia Times from IMF’s Springs Meetings summit. Afghanistan, Tunisia To Issue Sovereign Bonds In Bitcoin, Bright Future Ahead (#GotBitcoin?)
Khalil Sediq, the governor of the Central Bank of Afghanistan, confirmed that they were looking to utilize cryptocurrency and blockchain technology to raise around $5.8 billion. Sediq said they would pair bitcoin with a form of metal futures, such as lithium. The move would make it easier for Afghanistan to expose its $3 trillion lithium sector to investors across the world. The metal’s short supply against its booming demand in the electric-vehicle industry would pose profitable opportunities for Afghanistan.
Sediq went on to explain the situation that led them to opt for bitcoin over other fiat assets. The governor blamed the post-war conflict scenario that raised Afghanistan’s risk of debt. It prompted the IMF to expose the country to severe restrictions on non-concessional financing. In layman terms, developed economies were less likely to invest in Afghanistan owing to its risks limited to or beyond a geopolitical crisis, as well as to a perceived lack of fiscal and debt discipline.
Crypto solutions, explained Sediq, could allow Afghanistan economy to access global markets. He stated that they would use hyperledger’s blockchain technology financial services platform to issue their sovereign bitcoin bonds.
Bitcoin Bonds A Hot Topic
Blockchain and crypto payment solutions were a hot topic at World Bank and IMF 2019 Spring Meetings, held in Washington. The event saw delegates from developing countries posing cryptocurrencies like bitcoin as a potential solution to debt distress or high-risk debt levels. The discussions went on to question whether or not the current international financial architecture was able to prevent debt and economic crisis.
Sediq’s pro-bitcoin sentiments rippled through his Tunisian counterpart. Marouane El Abassi, Governor of Banque Centrale de Tunisie, told the meeting delegates that their country was looking to launching a sovereign bitcoin bond. The former World Bank official said the bitcoin and blockchain offered central banks an efficient tool to curb money laundering, terrorist financing, simplify remittance, and drain grey economies.
Javlon Vakhabov, Uzbekistan Ambassador to the United States, also revealed that they had dispatched a study group to the IMF World Bank to study bitcoin and blockchain. The delegate confirmed that they too were planning to issue sovereign bitcoin bonds in their cotton futures market.
Uzbekistan is the fifth-largest cotton producer in the world.
A Bright Future
The delegates’ positive take on bitcoin indicated the cryptocurrency’s vital prospects. A crypto-enabled bond escalates the industry into the world of mainstream finance. It further allows larger institutions to store value using bitcoin, thereby making it possible for others to use it as a payment method.
IMF director Christine Lagarde said the governments should initially issue bitcoin bonds using a closed and supervised approach.
3 Countries Tell IMF They Want To Issue Bitcoin Bonds
Afghanistan, Tunisia and Uzbekistan are currently mulling the possibility of a Bitcoin bond, all three interested in the instrument’s potential to help out critical sectors of the economy.
For Afghanistan, a bond could be tied to metals, specifically the country’s $3 trillion lithium industry. Despite being set for expansion due to a shortage of lithium, Afghanistan remains stifled when it comes to borrowing due to international restrictions.
The answer, Asia Times paraphrases Central Bank of Afghanistan governor Khalil Sediq as saying, lies in crypto solutions such as Hyperledger Fabric.
This, he claimed, “could offer a way to access international markets via a first-of-its-kind financial instrument made possible with hyperledger’s blockchain technology financial services platform.”
Similarly buoyant about the concept was newly-installed Tunisian central bank governor Marouane El Abassi. Abassi, known for his progressive stance on technology such as blockchain, said a dedicated working group was already studying the feasibility of a Bitcoin bond.
Bitcoin and Hyperledger’s Blockchain technology, he indicated,
offers central banks an efficient tool to combat money-laundering, manage remittances, fight cross-border terrorism and limit grey economies.
In line with many other nations, Tunisia is also getting to grips with the idea of issuing a digital version of its national fiat currency.
IMF Remains Cautious
For Uzbekistan meanwhile, a Bitcoin bond could end up tied to cotton futures, Uzbek Ambassador to the United States Javlon Vakhabov told the Spring Meetings.
The approaches may yet gain mixed reviews from the IMF, in particular. Earlier this month, managing director Christine Lagarde again called for caution regarding cryptoassets, saying supervised testing would be preferable as a first step.
“One approach, undertaken in Hong Kong SAR, Abu Dhabi, and elsewhere, is to establish regulatory ‘sandboxes’ where new financial technologies can be tested in a closely supervised environment,” she concluded in a blog post.
Above all, we must keep an open mind about crypto assets and financial technology more broadly, not only because of the risks they pose, but also because of their potential to improve our lives.
Lagarde likened the advent of early-stage cryptocurrency and associated financial technology to that of the telephone and its initial reception.
Bond, Bitcoin Bond: Japanese Firm Issues Debt Denominated In Bitcoins
Japan Takes The Lead
Japan has been at the forefront of regulating Bitcoin, with the government legalizing Bitcoins as a form of payment early this year. Regulators have also exempted Bitcoin from sales tax, increasing the volume of Bitcoin trades and at one point making Japan the largest Bitcoin market.
It comes as no surprise that a Japanese company, Fisco, has taken the lead in experimenting with Bitcoin bonds. As per a Bloomberg report, Fisco has issued a three year debt of 200 Bitcoins to another group firm.
The bond has a three percent interest rate. The company aims to arrange cryptocurrency debt for its clients if the Bitcoin market develops.
While Wall Street has taken an interest in cryptocurrencies, there haven’t been too many Bitcoin-denominated financial products so far. The efforts of the Winklevoss twins and others to start a Bitcoin ETF has remained stuck in regulatory red tape.
Borrowing In An Appreciating Currency – A Recipe For Disaster?
In the opinion of a substantial majority of people, the outlook for Bitcoin in the long term is positive. Bitcoin, although a risky asset, is expected to grow by leaps and bounds in the medium term.
In such a scenario, issuing bonds denominated in Bitcoin might be a recipe for disaster. One million dollars borrowed in mid-July could turn into debt of two million dollars in mid-August.
Ordinary businesses, whose core competency is not Bitcoin trading, cannot afford to take this substantial risk. Bitcoin-denominated loans could make sense to two types of companies. One, if the company is a Bitcoin trader who wants to take a short position in Bitcoin.
The other are companies whose earnings are denominated in Bitcoin (such as Bitcoin mining companies) who stand to benefit from Bitcoin price appreciation and can afford to pay back debt denominated in Bitcoin.
For ordinary companies, issuing Bitcoin-denominated debt is foolhardy.
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