UK to Pioneer Digital Gilt Program in Major Financial Markets Shift
The United Kingdom is set to modernize its government debt market with plans to launch digital gilts within the next two years, marking a significant step toward embracing blockchain technology in traditional finance.
Chancellor Rachel Reeves is expected to announce the digital gilt pilot program during her upcoming Mansion House speech on Thursday, as the government aims to streamline its £297 billion ($382 billion) borrowing program. The initiative represents one of the most ambitious attempts by a major economy to integrate distributed ledger technology (DLT) into sovereign debt issuance.
The pilot program comes at a crucial time for the UK’s financial markets, as the government seeks to maintain London’s position as a global financial hub. By digitizing government bonds through blockchain technology, the Treasury aims to reduce transaction costs and increase trading efficiency in the gilt market.
UK Finance, the industry trade body, has collaborated with EY to develop a detailed roadmap for the digital gilt rollout. The proposed framework outlines two potential approaches: a gradual, multi-staged implementation over 18 months or a more accelerated “Big Bang” deployment.
Under the phased approach, the program would begin with a short-dated digital Treasury bill involving a limited number of market participants, followed by medium-term gilts with expanded functionality and market maker participation. The final phase would enable both gilt trading and repurchase agreements (repos) to be conducted entirely on the blockchain.
“The UK can lay the groundwork for a robust and innovative digital capital market ecosystem, bolstering its position as a global leader in financial technology and digital finance,” UK Finance stated in its recently published roadmap.
The UK’s move follows Slovenia’s groundbreaking issuance of the eurozone’s first sovereign digital bond earlier this year. Global institutions, including the European Investment Bank and the World Bank, have already experimented with blockchain-based debt issuance.
One key advantage for the UK is its existing financial infrastructure, particularly Fnality, a tokenized cash settlement network backed by over 20 institutions and the Bank of England. The combination of digital gilts and Fnality’s settlement capabilities could potentially revolutionize the UK’s financial markets, especially in the repo market where instant settlement could enable more flexible intraday trading.
However, the initiative faces several challenges, including the need for new legislation and regulatory frameworks to support digital gilts as collateral for repos and other financial instruments. The government will also need to ensure sufficient market liquidity and address technical implementation concerns raised by the Debt Management Office.
