Japan’s Finance Ministry outlines three possible models for tokenized government bonds

Japan’s Finance Ministry held the first meeting of a study group on blockchain-based government bonds and released materials classifying bond tokens into three types, according to local media. The first model involves circulating on a blockchain the beneficiary rights of a money market fund invested in government bonds. The second would keep the existing settlement system while recording the transfer ledger on a blockchain. The third would involve directly issuing a new form of blockchain-based government bond outside the existing system. The ministry said blockchain use in government bonds could improve the efficiency of collateral and liquidity management and broaden the investor base, with particular potential to expand access for overseas investors. It added there are also challenges, including market fragmentation across multiple blockchains and platforms, as well as system transition costs tied to changes in existing financial and payment infrastructure. The classification is provisional rather than a final decision, and the ministry plans to continue discussions and release a report before January next year.