Hong Kong Central Bank to Subsidize Tokenized Bond Issuances

On February 16, Hong Kong’s government issued $100 million in tokenized green bonds as part of its Green Bond Programme.

The Hong Kong Monetary Authority (HKMA), the central bank of Hong Kong, has introduced a new scheme to offset some of the costs of issuing tokenized bonds. This initiative is aimed at encouraging broader use of tokenization in the region’s capital markets.

According to a statement released on November 28, the HKMA’s Digital Bond Grant Scheme (DBGS) will cover up to 50% of the “Eligible Expenses” for each qualifying digital bond issuance, though there is a cap on the total amount.

“The DBGS is intended to support the growth of the digital securities market and encourage greater adoption of tokenization technology in capital market transactions,” According to the HKMA,

Eligible applicants can receive a grant of up to $321,184 (2.5 million Hong Kong dollars) for a full grant, with a maximum of two issuances per company. A partial grant of $160,597 (1.25 million Hong Kong dollars) is also available.

The DBGS program, which accepts applications starting on November 28, will run for an initial period of three years.

To qualify for the half grant, the bond must be digitally issued on a platform operated by the Central Moneymarkets Unit (CMU) and by a company with a significant Hong Kong presence.

For the full grant, the bond issuance must meet additional requirements: it must have a minimum size of $128.5 million (1 billion Hong Kong dollars), be sold to at least five investors, and be listed on the Stock Exchange of Hong Kong Limited (SEHK) or another platform licensed by the Hong Kong financial regulator.

In an update on November 28 regarding Project Evergreen, which was launched in 2021 to explore distributed ledger technology in financial markets, HKMA’s Chief Executive Eddie Yue explained that the DBGS is a direct outcome of that research.

Yue noted that some bond issuers still face challenges when adopting tokenized bonds, and the HKMA introduced the incentive to help overcome these barriers.

Earlier in 2024, Hong Kong’s government issued $100 million in tokenized green bonds under its Green Bond Programme on February 16.

“Tokenization has gained significant traction since then, with market estimates indicating that over $10 billion worth of tokenized bonds have been issued globally in the past decade,” Yue commented.

In a related development, a report from the *Financial Times* on November 28 highlighted that Hong Kong is considering tax exemptions for crypto gains for hedge funds, private equity, and family investment vehicles, with the goal of establishing itself as a leading financial hub for cryptocurrency.

Additionally, on November 25, Hong Kong’s largest virtual bank, ZA Bank, launched a new service allowing retail users to directly buy and sell Bitcoin (BTC) and Ether (ETH) using fiat currency.