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3 Countries Are Interested In Bitcoin Bonds And What That Means

ยท 30 Apr 2019 in Analysis

Bitcoin opportunities are taking off for the people interested in seizing them. They can get Bitcoin from specialty cash machines, order Bitcoin debit cards and spend their cryptocurrencies at an increasing number of merchants that accept Bitcoin as a form of payment. And, those options are just the start.

Another possibility in the Bitcoin space is that of Bitcoin bonds. Recently, three countries — Uzbekistan, Afghanistan and Tunisia — expressed interest in offering sovereign — meaning government issued — Bitcoin bonds. But what does that mean, and how could such an offering stimulate the economy in those nations?

The News Came by Way of Recent Announcements

Not long ago, Washington D.C. hosted the World Bank and International Monetary Fund (IMF) Spring Meetings. It was at those gatherings that the attendees heard the three countries mentioned above are interested in Bitcoin bonds. To further understand the meaning of that possibility, it’s important to remember how bonds work.

People can think of bonds as types of loans. When an investor buys a bond from an issuer, it loans money to that entity. Then, the bondholder gets interest issued from the holder at intervals specified by the bond terms. Bonds often have fixed interest rates, but the interest rate of certain bonds changes depending on market conditions.

Then, when the bond reaches maturity, the issuer pays the entire amount back to the person possessing the bond. Concerning the bond issuer, the benefit of the bond is that it gives them access to financial resources they’d not otherwise have.

Bonds Could Fuel Specific Improvements

Reports indicate that of the three nations mentioned, Tunisia and Afghanistan are the furthest along in their plans to create Bitcoin bonds. The governor at the Central Bank of Afghanistan noted that Bitcoin bonds could help raise the $5.8 million worth of private-sector investments needed for the country’s mining, agriculture and energy needs.

More specifically, Afghanistan is one of the primary miners of lithium, a type of metal in short supply and much demand due to the electric car market. However, the country has restrictions imposed on non-concessionary loans that makes it exceptionally challenging to get financial assistance from other nations. Issuing Bitcoin bonds on the blockchain could give Afghanistan other options for developing their country through financial means.

In the United States, governments are familiar with using general obligation bonds that use all legally available resources, including tax revenues, to pay back bondholders. They often rely on banks who handle those specifics. General obligation bonds help the government and residents by putting money into the economy. Afghanistan could see the same benefits.

Tunisia and Uzbekistan Eager to Learn About the Possibilities for Bitcoin Bonds

A representative from Tunisia spoke at the Spring Meetings and noted the country created a working group to explore the possibility of creating a cryptocurrency bond. That individual also pointed out that Tunisia was one of the first nations in the world to issue a digital currency. As such, it is arguably already more accustomed to alternative currencies than some other places.

However, reports didn’t mention the specific areas of its economy that might benefit if the bond comes into fruition. Finally, Uzbekistan sent a high-level delegation to the IMF World Bank meeting and intended to learn more about Bitcoin and blockchain. A representative mentioned that Uzbekistan is one of the world’s largest producers of cotton and that a Bitcoin bond could assist that sector.

The IMF Seems Open-Minded But Cautious

The financial bodies involved in the recent meetings have not officially responded with input about these countries making Bitcoin bonds. But, a post on the IMF website from its managing director Christine Lagarde may give a glimpse into the IMF’s thoughts.

She believes it’s crucial to keep an open mind about the potential of FinTech, including cryptocurrencies, by realizing how they could improve people’s lives but also recognizing the potential risks. Lagarde mentioned testing technologies in a supervised environment as one way to minimize possible problems.

Not the First Instances of Cryptocurrency or Blockchain-Based Bonds

Uzbekistan, Tunisia and Afghanistan all hope to be among the first nations to issue sovereign bonds. But, there’s been an earlier case of Bitcoin bonds issued. In 2017, news outlets mentioned that a Japanese company called Fisco was preparing to release a Bitcoin-backed bond. It has an interest rate of 3% and gives holders Bitcoins after the bond matures.

More recently, the Austrian government issued the equivalent of $1.35 billion in government bonds on the Ethereum blockchain.

Still in the Early Stages

It’s not possible to say yet how Bitcoin bonds could reshape the economies of the governments choosing to use them. But, the information here shows why the opportunities could be so promising.

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