Financing the Future: A Proposal for Digital Development Bonds for emerging economies[1]
Manuel Balmaseda, Ángel Melguizo and Víctor Muñoz
Partners, ARGIA Green, Tech & Economics
Technology is reshaping the global economy, redefining industries and daily life. Advances in artificial intelligence, 5G, cloud computing, and blockchain are transforming digital ecosystems and accelerating productivity and innovation. Yet, while technological giants dominate markets, many emerging economies struggle to integrate into this paradigm. Infrastructure gaps, limited investment, and financial constraints hinder digital transformation, making innovative financing mechanisms essential.
Modernizing Development Financing
Traditional development financing is ill-suited to digital projects, which require substantial long-term investment. Unlike physical infrastructure such as roads or power plants, digital projects often lack tangible assets that investors can collateralize. The challenge is to design financial instruments that de-risk these investments while ensuring sustainable returns.
Digital development bonds offer a solution by channeling capital into high-impact technological infrastructure. Modeled after green and social bonds, these instruments would fund projects such as fiber optic expansion, AI-driven smart cities, advanced cybersecurity frameworks, and sustainable data centers. They could also accelerate the adoption of Internet of Things (IoT) applications in manufacturing, logistics, and public health, strengthening economic resilience and global competitiveness.
The benefits of digital development bonds extend beyond infrastructure. Governments utilizing digital bonds to finance large-scale technological initiatives can modernize administrative processes, improve public services, and enhance cybersecurity frameworks to protect sensitive data. Smart city infrastructure, digital identity programs, and AI-driven public administration reforms can be crucial beneficiaries of this investment, ensuring long-term national resilience. By enabling widespread digital access, they drive economic productivity, enhance service delivery, and create new opportunities across sectors. Countries that embrace these transformations will integrate into global value chains, optimize labor markets, and unlock new growth pathways. Conversely, those failing to invest in digitalization risk stagnation and reduced global competitiveness. Digital inclusion also fosters social progress by expanding access to education, healthcare, and financial services, reducing inequality and strengthening economic resilience in developing economies.
Digital development bonds structure
A well-structured digital development bond would leverage asset-backed securities, where the infrastructure itself serves as collateral. Telecommunications networks, data hubs, data centers and AI-driven platforms would provide investors with a direct stake in digital expansion. Convertible options could further enhance attractiveness, allowing bondholders to transition into equity investors in successful projects. By linking financial returns to technological success, these bonds ensure long-term sustainability and reduced default risk.
To maximize impact, digital development bonds should integrate preferential financing conditions. Large technology firms could participate as co-investors, reducing risk and improving financial terms. Their involvement would also facilitate knowledge transfer, accelerating project execution. Governments and development banks could provide guarantees, ensuring projects meet long-term objectives and align with national digital strategies. Additionally, structured incentives, such as performance-based interest rates, could further enhance the appeal of these bonds.
Currency denomination plays a crucial role in attracting investors. Issuing in stable currencies, such as the US dollar or euro, would appeal to global markets while minimizing foreign exchange risks. However, incorporating local currency issuance with hedging mechanisms could enhance regional capital market development. Additionally, integrating blockchain-based transaction tracking could improve transparency, reduce costs, and enhance market efficiency.
Transparency is essential, requiring independent impact certification. Specialized firms should evaluate investments to ensure they contribute to measurable digital transformation. Certification frameworks similar to green bonds could verify that funds are directed toward sustainable and inclusive technological advancements, boosting investor confidence and ensuring accountability.
Multilateral institutions should play a leading role in developing, structuring, and promoting digital development bonds. Their participation would bolster investor confidence, facilitate access to expertise, and ensure projects align with best practices. Beyond financing, these institutions could provide technical assistance, helping governments design regulatory frameworks that promote innovation while safeguarding competition and consumer rights. They should also develop standardized metrics for assessing the economic and social impact of digital bonds, ensuring that investments drive equitable digital expansion.
The Time is Now
As industries grow increasingly reliant on digital tools, financing must keep pace. Traditional funding models are inadequate for addressing the complexities of digital transformation. Digital development bonds offer a viable, forward-looking strategy to bridge investment gaps and create sustainable pathways for economic progress. The success of digital development bonds will depend on global collaboration. Governments, investors, and international organizations must align efforts to ensure efficient capital allocation, regulatory oversight, and sustained economic impact.
This is a pivotal moment. The digital revolution is unfolding rapidly, and emerging economies cannot afford to lag. Governments, investors, and financial institutions must act decisively to implement innovative financing models. Digital development bonds represent a high-impact solution to unlocking the potential of digital economies. Their ability to fund critical technology infrastructure, accelerate economic transformation, and bridge investment gaps makes them an essential tool for sustainable development. The future is digital—its financing should be as well.
[1] Revised and updated version of “Financiando el futuro: una propuesta de bonos de desarrollo digital para Iberoamérica” published in Revista Pensamiento Iberoamericano, Secretaría General Iberoamericana.