3FOOD

Third Industrial Revolution Consulting Group
greatly lower the friction and costs in real estate transactions, potentially doing away with title
insurance and other intermediary services, helping loosen up Luxembourg’s tight property
market. .
When combined with the secure, remote, automated execution of legal claims that’s facilitated
by smart contracts (see below) as well as blockchain-based auditability of source data, the
significant reduction in transaction costs that tokenization allows could also foster entire new
asset classes. That’s because it becomes cost-effective to securitize income receivables that
would otherwise be ineligible for traditional financial engineering. Examples include the
revenue earned by household solar panel installations or income earned from temporary
housing rentals.
These new blockchain securities will benefit greatly if there is a benchmark blockchain issue
against which to price them. Here lies a significant opportunity for the Luxembourg
government. It could follow the lead of the Monetary Authority of Singapore, which is
responsible for issuing all Singapore Government Securities (SGS), and is now piloting a
program to do so over the blockchain. (In this case, Singapore is using a private blockchain, not
by tokenizing into the BItcoin Blockchain.) 263 Like Singapore, Luxembourg’s fiscal situation, with
debt-to-GDP of just 21%, is extremely solid - the two countries are among just thirteen AAArated
sovereigns around the world. That puts it in a unique position to take a leading role in
creating a euro-denominated benchmark blockchain security. The Finance Ministry should
explore such an option, whether over a private blockchain or anchored into a public blockchain.
This is important because the blockchain will likely be a feature of so many other securities that
will be issued to realize Luxembourg digital aspirations, including that it become a home for
creating, managing and trading green securities. Having issued the benchmark bond for these
new asset classes will help cement leadership of this important new part of the capital markets.
Tokenization also raises the prospect of sovereign currency itself being embedded into the
blockchain. Once euro-backed IOUs are issued into the Blockchain, payments can be transferred
across this system in fiat. That could allow smaller and medium-sized financial institutions to
transfer funds across borders without paying expensive fee and collateral costs to
correspondent banks. Similarly, local exchange trading systems (LETS), substitute currency
systems aimed at encouraging localized spending in parallel with the national legal tender
economy, could also be administered in this manner. With Luxembourg interested in pursuing
such options to boost the local economy -- in parallel with the financial sector’s internationally
driven, euro-dominant commercial activities -- this approach is worth studying. Whether it’s to
263 Based on interviews at Monetary Authority of Singapore offices in Singapore, April 19, 2016
300