The Mitsubishi Union Financial Group (MUFG) is moving forward with a Japanese-Japanese debt chain settlement test, which plans to use block chains to compress the settlement process, which would normally take between 1 and 3 days, to near real-time processing. The project will be conceptually validated through the Canton network, with emphasis on the efficiency of settlement of national debt buy-back transactions.

Testing for national debt buyback for Focus Day

Owing to high credit levels and high liquidity, Japanese domestic debt has long been used as collateral for buy-back transactions by Japanese and overseas market participants. Repurchase transactions are, in essence, short-term financing and voucher-brokering arrangements secured by securities, and therefore the speed of settlement has a direct impact on the efficiency of working capital and collateral use.

MUFG states that the test sought to improve the operational and capital efficiency of the buy-back transaction through a 24-hour, seven-day uninterrupted chain of settlement. If the tests are successful, financial institutions can complete the transfer of collateral and the receipt of funds more quickly and reduce the waiting time in traditional processes.

Traditional settlement usually takes between 1 and 3 days

Under the current model, the settlement of national debt transactions usually takes between 1 and 3 days. MUFG is of the view that a shift to a chain-based approach would reduce the time frame for receipt and enhance the mobility movement capacity on the disk.

This direction is not unique to Japan. MUFG mentioned that in recent years European and United States financial institutions have been carrying out similar pilots, with the same objective of moving high-quality collateral transactions to a real-time treatmentable block chain network.

  • Test network: Canton
  • Application scenario: transactions and buy-backs on the Japanese national debt chain
  • Target effect: Real-time, round-the-clock

There are similar precedents overseas.

In the United States, a buy-back arrangement based on a block chain of national debt days has been in operation for several years. Morgan Chase’s Kinexys network has been used since 2020 to repurchase the U.S. Treasury-related chain. MUFG ' s further conceptual validation this time is also seen as the latest move by large Japanese banks to follow this trend.

MUFG also indicated that as the use of Japanese domestic debt as a high-credited and highly liquid asset continued to expand, the market demand driving it was increasing. This means that the use of block chains in traditional fixed-income markets is moving from conceptual exploration to more specific trading and settlement scenarios.

Synchronize stabilization currency cooperation

This test is also part of the broader MUFG chain layout. The Bank has recently worked with the Sanai Friends Financial Group (SMBC) and Mizuho to study the promotion of a joint publication of a stable currency to the market by March 2027.

If the relevant projects continue, large Japanese banks may form a closer chain of financial infrastructure between the settlement of national debt, collateral management and stabilization of currency payments.