The degree of blockchain adoption in China continues to increase and impress. Last week, the Central Bank of China has reportedly issued 20 billion yuan ($2.8 billion) in blockchain-based special financial bonds for small and micro-enterprises.
This recent issuance of $2.8 billion in bonds is definitely not the largest amount by the Chinese Central bank and came fully expected. As of the end of September, the Central Bank of China has issued around 404 billion yuan ($57.7 billion) to 410,000 small and micro enterprise customers, representing an increase of 35% since last year.
What really makes this issuance special and noteworthy, however, is the unconventional way that the bond was issued. Rather than going through the traditional method, the Chinese Central Bank used blockchain to operate the entire process, which could be seen as a surprise when one considers China's past position on decentralized technology.
According to Chinese news outlet Sina Finance in early December, the funds are specifically used to issue loans to these Chinese small and micro-sized companies to support their continued development in the economy.
China has developed a blockchain-based system that issues, tracks, and administers bonds, and this batch of $2.8 billion of bonds is the first public test of this system. The point of using blockchain technology is that it is cryptographically secure and immutable, creating a database that is trustworthy.
China is not the first country to experiment with blockchain-based bonds. In 2017 Japan became the first country to issue blockchain-based bonds, even though only $813,000 of bonds were issued. China's bond issuance seems to be the biggest blockchain-based bond issuance ever and is a proof that blockchain technology is ready for mainstream financial use.
On the other hand, China is expected to launch a central bank digital currency (CBDC), which will essentially be a blockchain-based stablecoin for the CNY. Once it is launched, this Chinese CBDC could be used to buy and sell blockchain-based bonds, creating an entire bond market based on blockchain technology. Ultimately, it appears that China could be moving towards establishing its entire financial system on blockchain technology.