Germany’s tech sector has hailed the government’s decision to allow some electronic-only securities—a move that paves the way for “crypto securities” to be entered into a blockchain-based register.
However, with the shift initially ushering in only paperless bearer bonds—shares and mutual funds will come later—they say it doesn’t go far enough.
Until now, Germany’s securities laws forced holders and issuers to use paper certificates for transactions. Now, e-securities will be treated exactly the same way as paper-based notes under the country’s financial regulations.
Finance Minister Olaf Scholz hailed the shift as “driving the digitization of Germany’s financial center.”
“The paper certificate may be dear to some for nostalgic reasons, but the future belongs to its electronic version,” Scholz said following a cabinet meeting at which the decision was taken. “Electronic securities reduce costs and administrative work.”
Blockchains are secure, decentralized ledgers that are stored and updated simultaneously on many people or organizations’ computers, making it nearly impossible to forge entries. The technology is best known as the foundation for cryptocurrencies such as Bitcoin, though they have many other potential uses ranging from finance to supply-chain authentication.
The acceptance of paperless bearer bonds does not necessarily mean electronic securities have to be registered on a blockchain—the newly-enabled entries could just be on a register at a central securities depository or a custodian bank.
However, the government made clear in a statement, the introduction of digital securities is “one of the central requirements of the federal government’s blockchain strategy.” It added that, because the new rules are framed in a technology-neutral way, they should be able to handle further technological developments in the future.
“The digitization of the financial market is already well advanced and will be accelerated even further through the use of technologies such as blockchain,” said Justice Minister Christine Lambrecht. “Today’s cabinet decision significantly expands the innovative potential of these technologies for the German financial center. At the same time, we create legal certainty in an area that is characterized by constant change through technological innovations.”
Bitkom, the German digital sector’s trade body, welcomed that legal certainty and said the law showed the government “is serious about its blockchain strategy.”
However, it noted disapprovingly that stocks are initially not included in the shift, only bonds. This, said Bitkom blockchain chief Patrick Hansen, meant the “full potential” of the technology was “still far from being tapped.”
“The benefits of blockchain for representing and trading securities are now well known,” he said in an emailed statement. “Now it is important at the German, but especially also at the European level, that the government creates the right conditions for this.”
Germany’s staged approach appears cautious, but it also seems to go further than other European countries that already allow electronic securities. France, notably, has for two years allowed blockchain-based trading of securities, but only nonlisted securities that do not use existing securities settlement systems.
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