UK to pilot Digital Gilt Instrument leveraging distributed ledger technology

In her first Mansion House speech on Thursday, UK Chancellor of the Exchequer Rachel Reeves announced the pilot as part of the government’s broader Financial Services Growth and Competitiveness Strategy. "We are supporting innovation in the financial services sector by launching a pilot to deliver a Digital Gilt Instrument, referred to as DIGIT using distributed ledger technology,” Reeves said.

This pilot builds on groundwork laid by the previous Conservative government , which had also proposed exploring tokenized government bonds. It complements recent initiatives, such as the launch of the Digital Securities Sandbox, which allows firms to test DLT applications and tokenization projects under a controlled regulatory framework.

A roadmap for digital gilts

Industry trade body UK Finance, in collaboration with EY, recently published a roadmap for implementing digital gilts. The roadmap outlines two potential approaches, each with distinct timelines and strategies.

A Phased Approach suggests a gradual rollout over three stages. In the first six months, a short-dated digital Treasury bill would be issued to a limited number of market participants to test the system in a controlled environment. Within the first year, a medium-term digital gilt would be introduced with expanded functionality, engaging more market makers and investors.

This stage emphasizes integrating digital gilts with the existing off-chain secondary market and ensuring their eligibility as collateral for repos, which is crucial for liquidity. By the 18-month mark, the final phase would see digital gilts traded and used in repos entirely on-chain, completing their integration into the market ecosystem.

Broader implications of digital gilts

Digital gilts offer the potential to enhance efficiency in capital markets. One key application is in repurchase agreements, where instant settlement via blockchain could replace the delayed settlement inherent in conventional processes. Intraday repos, which allow banks and institutions to manage liquidity on an hourly basis, are already being tested in the U.S. using tokenized Treasuries . A native digital gilt could simplify this process further, providing both the digital security and cash on-chain.

The UK is also uniquely positioned for success due to existing infrastructure like Fnality, a tokenized cash settlement network backed by an omnibus account at the Bank of England . With support from over 20 major institutions, Fnality could play a critical role in facilitating seamless transactions involving digital gilts.