Technological innovation is transforming capital markets. For sustainable finance in particular, not only are the potential efficiency benefits relevant to fundraising and investments, the possibility of applying different technologies in tracking and reporting environmental impact may also improve investors’ accessibility to information and potentially combat greenwashing concerns.

This is what motivated the Hong Kong Monetary Authority’s work on tokenised green bonds. We have so far issued two batches of government green bonds in tokenised format: an inaugural issuance in 2023, which marked the world’s first tokenised government green bond, followed by a second issuance in February 2024 in four major currencies (Hong Kong dollar, renminbi, US dollar and euro) totalling around US$750m equivalent, making it the world’s first multi-currency digital bond.

Central to the success of these issuances is the effective collaboration between the public and private sectors. From the HKMA’s experience, public sector involvement brings a number of benefits.

Increasing acceptance of innovation

In financial market transactions, public sector involvement typically helps add credibility and encourages investor take-up, complementing the private sector’s technical know-how, speed and market savvy.

Our two tokenised issuances are good examples. While we leveraged commercial blockchain platforms built by Goldman Sachs and HSBC for quicker time to market, the fact that the bonds were issued by the Hong Kong special administrative region government has given extra comfort to investors.

In addition, the positioning of the commercial platforms as an extension of the Central Moneymarkets Unit (Hong Kong’s central securities depository) allowed the transactions to benefit from statutory settlement finality, giving additional legal certainty to purely commercial platforms. In the second issuance, investors could even access the bond via CMU and its external linkages based on largely business-as-usual processes. This has significantly broadened the bond’s investor base, allowing more sizeable issuances to be done in the digital bond market.

Our tokenised issuances have shown that Hong Kong could provide a flexible and conducive environment for sustainable finance innovation. We have been actively sharing our issuance experience with the industry and the central banking community. Last year, we released a report to set out the options and considerations of a tokenised issuance from technology, deal structuring and legal and regulatory perspectives, with a view to providing a blueprint for future similar issuances.

Hong Kong is already Asia’s green finance hub, intermediating around one-third of the region’s sustainable bond issuances in recent years. Most of these are conventional bonds and we hope that we can provide a conducive environment for innovation, demonstrate to the market the potential benefits of the relevant technologies and foster adoption.

Mobilising private sector expertise and knowledge sharing

For our tokenised issuances,  the HKMA lined up project groups comprising a diversified mix of industry partners, which contributed different perspectives – technological, infrastructure, operational and legal. Each of these was essential to the successful execution of the deals. In such a setting, project participants were able to inspire and learn from each other. This is a good example of the public sector and private sector advancing together to break new ground.

The HKMA’s mandates as a central banking institution have also allowed us to explore synergies across multiple policy areas, for example, in sustainable finance and central bank digital currencies. In our first issuance, Hong Kong dollar cash tokens were minted by the HKMA in exchange for fiat cash provided by the banks, which could potentially pave the way for providing solid use cases for the HKMA’s CBDC initiatives down the road.

Our work does not stop here. Looking ahead, we will continue to look for other use cases that can promote broader market adoption in Hong Kong and beyond.