Global debt soars as bond markets transform

Thursday December 16, 2021 4:59 PM

Given the title, you can be forgiven for possibly thinking “how is this impacting my business or me?” Well unfortunately when you borrow money you usually have to pay it back, and in 2020, according to the IMF, global debt increased by 28%, reaching an all-time high of 256% of global GDP and reaching a low. incredible 226 trillion dollars. .

Global debt as% of global GDP…

Source: IMF

The definition of inflation is that it is the result of too much cash for too little property and based on the inflation numbers that are being reported around the world, it would appear that inflation is definitely on the rise, which, if so, so will interest rates which will make it more difficult for governments, businesses and individuals who are so indebted to service their loans.

So why is it relevant for blockchain and digital assets. Well, we are seeing more and more blockchain technology being used when it comes to debt instruments. There have been a number of banks that have issued bonds using blockchain technology:

  • European Investment Bank (BEI) issued and settled its very first digital bond in June 2021
  • Swiss stock exchange in November 2021 SIX placed the first senior unsecured digital bond in CHF
  • world Bank announced in August 2019 that it had raised an additional $ 33.8 million for its Bond-I Blockchain bond in collaboration with the Commonwealth Bank of Australia
  • In November 2021 Santander issued its first bond on a blockchain-powered platform

The trend is clear. More and more institutions are using blockchain technology to issue debt because it is proving to be more efficient and cheaper than traditional bond issues. In another development, we recently saw a German company called Cadeia works with Frick bank (based in Liechtenstein) carries out a securitization transaction for corporate loans on a platform powered by Blockchain. Like Constantin Ketz in Cadeia noted: “The entire transaction, including the issuance and settlement of securities, ongoing covenants testing, and rule-based cash flow management through pre-defined cascading structures, is processed through a series of smart contracts created automatically on the Ethereum blockchain.. “

Using blockchain technology to issue bonds and securitize loans is important for small businesses as well as larger ones, as it means that small and medium businesses will be able to access fixed interest markets. As transaction costs are reduced, it becomes more profitable to have smaller debt issues.

Public debt as% of GDP

Source: IMF

We have already seen the UK raise interest rates as it triggers temporary inflationary pressures and in the US cuts bond purchases program and without a doubt, we will see interest rates rise in the first quarter of 2022.

In conclusion, although a little scary, you might find this graph interesting and, if you click on here, then you can go to the IMF website and see how global debt has changed since 1950! So while it may become cheaper to issue debt instruments, the challenge is how all that debt will be repaid or will inflation just make it easier to manage and, in fact, destroy the value of the debt. those who hold the debt. Who are the typical pension fund debt holders and the so-called low risk investors?

Comments are closed.