Huaxia Bank, a major state-owned Chinese lender, has tokenized 4.5 billion yuan (approximately $637 million) in financial bonds on a blockchain, settling the issuance exclusively with China's central bank digital currency (CBDC), the digital yuan. This marks a significant step in the integration of blockchain technology and digital currency within China's financial system.

The bond issuance was spearheaded by Huaxia Financial Leasing, a subsidiary of Huaxia Bank, and is considered the industry's first instance of "blockchain book-building + digital RMB collection". The integration of blockchain technology ensures transparency and immutability, as the entire issuance process is recorded in real-time on the blockchain, allowing investors to access information at any time. Furthermore, the use of the digital yuan streamlines the process by eliminating multiple intermediary clearing steps, as funds are collected directly through digital RMB.

The issuance initially planned for 3 billion yuan but included a 1.5 billion yuan over-allotment option, which was fully utilized, resulting in a total issuance of 4.5 billion yuan. The bonds carry a 3-year coupon rate of 1.84%.

This move by Huaxia Bank demonstrates the practical application of blockchain technology in regulated financial markets within China. By using blockchain and the digital yuan, the bank aims to create a more secure and efficient bond settlement process. This is achieved by recording transactions in real-time, ensuring immutability, and streamlining settlement by removing intermediaries through digital yuan wallets.

China's central bank is encouraging the use of its digital currency for financial applications, but maintains restrictions on cryptocurrencies. This bond issuance by Huaxia Bank aligns with the country's broader strategy of embracing asset tokenization while leveraging its CBDC to modernize its financial infrastructure. Other state-owned financial institutions in China are also increasingly utilizing blockchain technology and the digital yuan for bond issuance, indicating a growing trend in the adoption of these technologies within the sector.