The issuance of micro-bonds using the blockchain technology will facilitate higher community participation at reduced operational costs and greater transparency.

On Tuesday, May 1, the city council of Berkley, California, voted unanimously to become the first municipality to use the blockchain technology for fundraising of community projects through the issuance of “micro-bonds”. The City Council has initially asked the city manager to weigh the merits of having a pilot venture that allows the city to sell some undisclosed amount of municipal bonds over the blockchain platform.

Ben Barlett, the vice mayor of Berkley who has been spearheading this initiative, wants to boost the community participation by reducing the minimum bond price. Barlett says that currently, the costs imposed by financial intermediaries for the municipality to issue bonds that are large in size and hence requires a minimum investment of $5000-$10000 to be made by an individual. He said: “No one can buy them, they’re not targeted to specific needs for neighborhoods and communities.”

Thus in order to ensure more community participation, Berkley plans to have a pilot venture and launch micro-bonds, in the denominations of $10 to $25 and powered by the low-cost blockchain technology. Barlett says that the blockchain technology will not only facilitate the issuance of the micro-bonds, it will also help to maintain utmost transparency in the process.

By using blockchain all the issued bonds and its related transactions can be stored in the public ledger. Moreover, the use of blockchian would cut costs spent considerably on third-party service providers that are required in the bond-issuance process. Barlett said: “Blockchain allows us to really disintermediate that process and make bonds more affordable for communities and for people.”

The Bond Buyer reports that Berkley will be the first city to test the waters if issuing municipality bonds using the public ledger. If this project turns out to be successful, the next project in line could be affordable housing. The publication also quoted Barlett saying that “It’s an exciting course to be expanding the market; and also to be creating new asset classes and opportunities for our people to own new assets, particularly in light of what is happening with creeping poverty.”

Barlett clearly mentioned that coupling the micro-bonds with the blockchain technology is “meant to get around Wall Street.” Should the political process give a nod for this, he is ready to go one step further and support other municipal projects through a tokenized currency.

Susan Wengraf, a councilwomen at Berkley has however expressed skepticism to Barlett’s plans stating “I don’t know much about it, but I know it’s very unstable. The examples used by other communities successfully [issuing mini-bonds] was based on dollars – cash, not cryptocurrency. I would be very happy to support the first part of the proposal and more skeptical about cryptocurrency.”

The Berkley city floated this proposal of having its own municipal token, earlier this year in February. However, the U.S President Donald Trump tweeted saying that the local university might lose its federal funding. It has to be noted that Berkley has the status of being a sanctuary city, which means that it doesn’t cooperate with the federal government in enforcing immigration law. As a part of this immigration reform, the Trump administration has also threatened to pull funding from all these sanctuary cities.

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