Thailand’s central bank has described ‘game-changing potential’ in an assessment of its first experiment in using digital central bank money for corporate payments and settlement.
Trials of a blockchain-based central bank digital currency (CBDC) for business-to-business payments boosted payments’ efficiency by allowing users to set conditions on the CBDC – so-called ‘programmable money’ – to increase flexibility, the Bank of Thailand (BOT) said.
But the central bank also said that use of distributed ledger technology (DLT) – a decentralised database managed by multiple participants – in its prototype had ‘limitations’, particularly in preserving transaction privacy and supporting large transaction volumes.
The BOT details its experimentation in a 29-page report, ‘Digital Currency – The Future of Payments for Corporates: Leveraging Technology to Enhance Efficiency and Innovation in the Business Sector’. The central bank says its results demonstrate that CBDCs ‘have the potential to be a game-changer that will transform the financial landscape and bring potential benefits to all participants along the supply chain’.
Most central banks worldwide are researching or experimenting with CBDCs. As the BOT’s work illustrates, focus is increasingly turning to the technology that would help deliver them. However, the BOT – like most central banks – has yet to commit to issuing a CBDC.
Further explorations required
The BOT’s trials were a public-private collaboration between the central bank, Siam Cement Group (SCG) and Digital Ventures (DV), with support from technology provider ConsenSys.
The experimentation saw the prototype CBDC system use DLT to integrate with procurement management, billing and payments systems between SCG, which is one of Thailand’s largest companies, and the company’s suppliers. DV is the fintech subsidiary of Siam Commercial Bank.
The project was the first time that the BOT had expanded the scope of its CBDC experimentation to business users. Previous research, known as ‘Project Inthanon’, has focused on interbank payments.
The BOT said that resolving the issues identified by the experimentation ‘through technology development or system design will need to be explored further’.
The central bank also said that, during 2021-2022, it will focus on the research and development of a publicly-accessible CBDC (also known as a ‘retail’ CBDC). It added that it was ‘important to involve the general public in our CBDC development process, to ensure that CBDC is conducive to financial innovation in this era of digital transformation’.
BIS conference puts focus on CBDC
The BOT is not only relatively well progressed in its domestic market-focused research, but also recently teamed up with the equivalent authorities in Hong Kong, China and the United Arab Emirates (UAE) to investigate the potential for CBDC use in cross-border foreign currency payments. The Bank for International Settlements (BIS) Innovation Hub Centre in Hong Kong is also involved in this research, which has the name ‘m-CBDC Bridge’ (the ‘m’ stands for ‘multiple’). The BOT had already been working with the Hong Kong Monetary Authority (HKMA) on cross-border research (‘Project Inthanon-LionRock’).
The m-CBDC Bridge project will be presented in one of numerous CBDC-focused sessions at an innovation conference being organised next week by the Switzerland-based BIS.
The ‘BIS Innovation Summit 2021: How can central banks innovate in the digital age?’ is a global ‘virtual’ event being held from 22-25 March. Other sessions on CBDC include: a presentation on cross-border ‘multi-CBDC’ arrangements; and a panel entitled ‘Navigating the uncharted waters of retail CBDC’ that is set to feature Changchun Mu, director-general of the People’s Bank of China’s Digital Currency Institute, as well as John Rolle, governor of the Central Bank of the Bahamas. China is seen as a CBDC front-runner, while the Bahamas captured headlines last year when it launched its ‘Sand Dollar’.
CBDC was also among the six priorities set out by BIS Innovation Hub in its 2021-2022 work programme.
*** The Bank of Japan’s (BoJ) governor, Haruhiko Kuroda, issued a brief update on Japan’s CBDC plans at the FIN/SUM Fintech Summit 2021 in Tokyo earlier this week. The BoJ has previously outlined its thinking on CBDC in a 19-page document published six months ago. Kuroda said the central bank had since then ‘been preparing to conduct experiments’ and is ‘finally scheduled to begin these experiments in spring 2021’.
ATTEND ‘Delivering Central Bank Digital Currencies (CBDCs): Exploring the Technology Challenge’ – upcoming Global Government Fintech webinar, supported by our knowledge partner Amazon Web Services, on 22 April 2021