UK Government Shares Plans For DIGIT Digital Bond, Willing to Decentralize Market Infrastructure

HM Treasury outlined its digital strategy for wholesale financial markets on Tuesday, setting out expansive ambitions that include a willingness to replace centralized solutions with decentralized ones. The strategy also provided updated details on DIGIT, the government’s planned digital bond issuance. When Treasury first outlined DIGIT plans in March, details were sparse, with many questions posed to industry. The proposal called for an entirely new product issued on a DLT platform as part of the Digital Securities Sandbox, designed to be short dated and separate from the government’s main debt issuance program.

Treasury has now added several details, including on-chain settlement capabilities. The government also aims to support over the counter trades using smart contracts and ensure interoperability with traditional platforms. Many current DLT infrastructures have already integrated with conventional central securities depositories (CSDs) to accommodate both technology focused and traditional investors. The SIX Digital Exchange was the first to do so in 2022, while HSBC’s Orion platform is embedded in Hong Kong’s CMU and Euroclear has linked its D-FMI DLT platform with its main CSD. Beyond these design features, the government said it would work with industry to explore collateral mobility and secondary markets.

DIGIT represents just one element of Treasury’s digital strategy for wholesale markets, where DLT features prominently. The government made several commitments, stating it wants to move beyond testing tokenized asset solutions to actually rolling them out and scaling them up. The strategy includes ensuring regulations support adoption and promoting cross sector implementation of DLT. One of the developments involves the Digital Securities Sandbox, which previously prohibited stablecoins for settlement purposes. While stopping short of a full commitment to stablecoins, Treasury indicated willingness to explore their inclusion alongside tokenized deposits.

The policy paper highlighted the government’s expansive vision in one key paragraph: “The UK should be open to completely new models across the various wholesale market activities, including payments, trading, clearing, settlement and reporting. It should be open to different technological solutions, including solutions that decentralize functions currently performed by centralized entities.” To help deliver this ambitious agenda, Treasury will appoint a new Digital Markets Champion to coordinate private sector efforts. The role will cover AI, automation and DLT initiatives.