2026 Perspectives for the Public Sector

The Public Sector Is Driving Digital Issuances The public sector is at the forefront of building the foundations of digital capital markets. Sovereigns, local authorities and development banks are grappling with ever- increasing financing needs for infrastructure, public services, and economic development. Digital bonds have the capacity to unlock a more agile, cost-effective, and auditable method of raising capital. Regulatory frameworks are still evolving to accommodate these innovative instruments: the BIS report notes that realization of the benefits of tokenization depends on solving for regulatory and infrastructure challenges. 5 However, a growing number of public bodies are pioneering pilot projects and establishing legal precedents. Some financial institutions have also established in- house platforms bypassing traditional central securities depositories (CSDs) to support digital issuances. Other institutions are focusing on partnering with existing financial market infrastructures (such as Euroclear’s Digital Financial Market Infrastructure (D-FMI)). Startups are also entering the space and attempting to build decentralized CSDs. This shift signals that digital bonds are poised not only to modernize capital markets but also to fundamentally reshape how public finances are orchestrated, heralding a new era for government debt issuance and management. The public sector has demonstrated its strong credentials on an array of emerging platforms, with significant growth in digital bond issuances. This has been enabled by regulators and policy makers creating sandboxes, pilot regimes, and providing regulatory relief to promote innovation and drive market infrastructure modernization. Many development banks have a mandate to drive innovation by developing and encouraging new platforms and infrastructures. This has spurred traditional financial market infrastructures (FMIs) to modernize their existing solutions or build blockchain-based applications for debt issuances. The European Investment Bank (EIB) has been a market leader, issuing several digital bonds in a variety of currencies. EIB’s first digital bond issuance in 2021 was a €100 million bond issued on the Ethereum public blockchain. Subsequent projects have included Project Venus, the first EUR- denominated digital bond issued on a private blockchain, and a GBP-denominated digital bond that used a combination of public and private blockchains. Similarly, the World Bank has been a pioneer with its blockchain operated new debt instrument (known as bond-i), an A$110 million issuance arranged by the Commonwealth Bank of Australia (CBA) that showcased how DLT can be used to manage the entire bond lifecycle, from issuance to redemption. Other key public sector issuers of digital bonds include the Hong Kong Monetary Authority (HKMA), Inter-American Development Bank (IDB) and the city of Lugano (Switzerland). These landmark issuances, alongside explorations by other governments, central banks, and development banks around the world, signal a clear shift towards integrating digital assets into public finance strategies. Top Digital Bond Issuers by Volume and Number of Deals (January 2022 – July 2024) Issuers Number of Deals Volume ($mm) 1. EIB 3 1105 2. HKSAR Government 5 853 3. UBS 2 539 4. World Bank 2 329 5. Lugano city 2 221 6. Union Bank of the Philippines 1 209 7. Societe Generale 5 178 8. KfW 2 129 9. Canton of Basel City 1 120 10. Canton of Zurich 1 114 Source: Digital Assets 2024—OMFIF The digital bond market is growing quickly, driven by transactions across a wide range of issuers, bookrunners, and exchanges. Notably, public sector institutions are driving much of the innovation that has taken place in this nascent and rapidly evolving new space. Over the coming years, new participants will continue entering the market as the tokenization of bond issuances — and many other financial instruments such as mutual funds, ETFs, and loans — becomes widespread. 5 https://www.bis.org/publ/bisbull107.pdf 48 Tokenizing Public Sector Debt: Reimagining the Bond Lifecycle from Issuance to Custody