(Bloomberg) — The UK plans to begin issuing digital gilts within the next two years, as the government latches onto technology it’s been slow to embrace.

Chancellor Rachel Reeves is expected to announce a digital issuance trial in her Mansion House speech to the City of London on Thursday, according to people familiar with the matter. Chancellors traditionally use the forum to announce policies to support the financial industry.

The new Labour government is striving to modernize its financial markets, in this case by using blockchain technology that underpins Bitcoin to “tokenize” its government debt. The hope is that it will make gilt trading faster and cheaper.

The digital shift comes as the government embarks on a £297 billion ($382 billion) borrowing spree, the second-largest borrowing slate on record, with sales expected to remain elevated for years. Legislation may need to be introduced to Parliament for the blockchain-based sales to go ahead, the people said.

The Treasury declined to comment.  

Digital bonds were floated when the Conservatives were still in power. Back in 2022 Treasury minister John Glen said the department was exploring whether it’s possible to digitize debt issuance.

Now the Treasury is mapping out a timeframe for the first digital gilt sales. For its part, the Debt Management Office said it’s been advising the government on the workability of issuing bonds through “distributed ledger technology” in its latest annual report.

While such transactions remain niche, proponents of digital bond sales say it will make debt-raising easier by automating many processes and reducing transaction costs. 

Earlier this year, Slovenia issued the first euro-area sovereign digital debt, while supranational institutions including the European Investment Bank and the World Bank have been dabbling in blockchain-based issuance for years. 

The UK’s strategy chimes with that proposed by the Association for Financial Markets in Europe, which represents bond-dealing banks. Earlier this year, it proposed governments integrate blockchain into their debt-raising strategy pursue a phased approach, with initial “experimental” issuances to be carried out over a period of one to two years before larger sales are adopted.

–With assistance from Emily Nicolle.

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