Chinese Bank Issues Mortgage Derivatives Worth $1.3 billion on Blockchain

Bank of Communications aims to make the mortgage securities trade more transparent.

Bank of Communications, one of China’s four primary banks, has issued more than $1 billion worth of residential mortgage-backed-securities on a blockchain, according to CoinDesk.

Contracts Based on Debt

The blockchain is called ‘Jucai Chain’. It was first launched in June 2018 as a system for handling securities contracts in a more transparent way. The bank began moving data onto the chain in July.

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RMBS contracts are based on debts incurred from residential loan agreements. They are often purchased by financial institutions because of their long terms and cash flow.

Critics of these contracts say that their complexity and lack of transparency makes it difficult to monitor risk, and many have argued that competition between financial institutions in trading these contracts was the main cause of the financial crisis of 2008.

According to Chinese news outlet Xinhua, the participants in this scheme (which include Zhong Lun Law Firm of Beijing, Industrial and Commercial Bank of China, and British tax and accounting company PricewaterhouseCoopers), blockchain technology can solve these problems because information processed in this way cannot be tampered with.

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According to the China Securities Times, an official financial news source, the Jucai Chain will allow parties to view up-to-date information, settle transactions without intermediaries, and monitor for inconsistencies. It will also make the process faster and more efficient.

The value of the contracts issued on the blockchain so far is 9.3 billion yuan, or around $1.3 billion.

Blockchain in China

Bank of Communications dates back to 1908 and was listed on the Hong Kong Stock Exchange in 2005. It has a market capitalisation of approximately $116 billion.

Despite the fact that many cryptocurrency-related activities are banned in China, especially the involvement of foreign companies, the government of that country is also promoting vigorous blockchain development. This has led to at least one city launching a blockchain development fund, and over 3,000 companies registering themselves with blockchain-themed names in the first six months of 2018 alone.

Other major Chinese banks have also been dealing with blockchain technology. For example, in August, Bank of China announced that it would be spending money to research a blockchain-based monitoring system.

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