On November 18, 2024, the UK government announced an exciting pilot project to issue a Digital Gilt Instrument (DIGIT) using distributed ledger technology (DLT). This initiative, first revealed by the Chancellor of the Exchequer on 14 November, aims to modernise the debt issuance process and maintain the UK's position as a global financial leader.
This pilot aims to issue a digital bond, powered by DLT, with similar features to a conventional gilt. In a statement made by Tulip Siddiq, the Economic Secretary to the Treasury, she describes DLT as
technologies that use networks of ledgers to update and synchronize transactions simultaneously.
She also says DLT has the benefits of
increased efficiency, automation, resilience, and transparency in financial markets.
The UK government is planning to collaborate with industry partners to test DLT across the lifecycle of the DIGIT. This pilot will be conducted within the Digital Securities Sandbox (DSS), a regulatory environment through which firms can use DLT to create, trade and administer securities, while being supervised by the Bank of England and the Financial Conduct Authority. The DSS allows firms to experiment with DLT-based market infrastructures in a controlled setting, ensuring innovation while managing potential risks.
The goal of this pilot is to explore the benefits DLT could bring to the government's debt issuance process, potentially leading to more efficient and transparent transactions. Additionally, this pilot supports the broader development of DLT platforms and infrastructure in the UK capital markets.
To ensure the pilot's independence, the DIGIT pilot will operate separately from the Debt Management Office's current gilt and Treasury Bill operations. The UK government plans to engage with the sector in early 2025 to discuss the issuance details and available technology options.
The initiative marks a significant step towards embracing digital markets and sovereign debt, helping position the UK as a centre for global digital finance.
Written by J Huang and S Pettigrove
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