The Swiss city of Lugano has announced the issuance of a native digital bond in early 2023, building on the success of its first issuance.
Lugano’s primary digital bond, worth 100 million Swiss francs ($114 million), will rely on Switzerland’s experimental central bank digital currency (CBDC) for settlement. Swiss authorities have been experimenting with new CBDC use cases as part of Project Helvetia III, a limited CBDC pilot project.
The bond issuance reflects the 2023 proposal, in which the city relies on blockchain technology based on SIX Digital Exchange. For custody, Lugano’s new digital bonds will be transferred to SDX’s central securities depository to integrate traditional financial systems with Web3 services.
“This embodies the city’s direction to become a ‘model of innovation’ and promotes and supports digital transformation, technological innovation, development and research with the aim of becoming a cutting-edge city,” said Michele Foletti, Mayor of Lugano. .
Lugano’s latest bond issuance, similar to the 2023 iteration, utilizes J. Safra Sarasin, Zurcher Cantonalbank and Basler Cantonalbank as lead managers.
Banks participating in the digital bond have confirmed high interest rates, with Zurcher Kantonalbank reportedly closing its order book within 20 minutes. Bank executives have identified nine separate proposals, with banks, insurers, asset managers and pension funds looking for a piece of the pie.
In late 2023, the Swiss cantons of Zurich and Basel settled a digital bond designed as a wholesale CBDC, seeking approval from the Swiss National Bank (SNB).
“As the most ambitious wCBDC project in capital markets history, the completion of the first securities transaction of a wCBDC in a developed economy, based on regulated blockchain-based infrastructure in a production environment, represents an important milestone for the entire industry in the adoption process. A tokenized DLT-based financial markets infrastructure,” said David Newns, Head of SIX Digital Exchange.
Tokenization drives costs
Global interest in tokenization has been growing increasingly in recent months, with digital bond issuances increasing in succession. After successfully issuing its first digital bond, the Hong Kong Monetary Authority (HKMA) has issued its second digital bond worth $756 million.
Banking regulators are adjusting their conversation on the tokenized properties of incoming CBDCs to remain competitive in an evolving environment.
“If central bank funds cannot be adapted to the evolving environment, i.e. if central bank funds cannot be used to settle tokenized transactions, industry players will likely turn to alternative payment assets such as stablecoins,” said Denis Beaux, deputy governor of Banc de France. “It means you can,” he said.
To learn more central bank digital currency Read on for some design decisions to consider when creating and getting started. nChain’s CBDC Playbook.
Watch: Building a CBDC System on Bitcoin
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