The Bank of Thailand (BOT) has announced plans for pilot testing of a retail central bank digital currency (CBDC).
The BOT has published guidelines for the development and testing of a retail CBDC (also known as a general purpose CBDC – a CBDC that would be available to the general population) in a real-world environment under what it describes as two ‘tracks’.
In a press release issued last week (19 August), the central bank states that a ‘foundation track’ will test and evaluate CBDC in conducting cash-like activities ‘within a limited scale’, such as accepting, converting or paying for goods and services. Testing is expected to begin during the second quarter of next year.
Meanwhile what the BOT refers to as an ‘innovation track’ will test and evaluate the ways in which CBDC can be further developed for ‘innovative use cases’, by allowing for participation from the private sector and technology developers. The BOT is ‘in the process of considering the format and criteria’ for participation.
Systematic importance ‘highly likely’
The BOT published a 59-page paper entitled ‘The Way Forward for Retail Central Bank Digital Currency in Thailand’ in April.
The paper concluded that it was ‘critical for the BOT to prioritise capacity-building and take the necessary preparations for retail CBDC issuance’. It stated that ‘even though there is no immediate need to issue a retail CBDC to the general public under current conditions, there is a high likelihood that the adoption of digital currencies could become systematically important in the near future, at which point the issuance of CBDC would be appropriate.’
The BOT’s newly released plans for retail CBDC testing follow an online survey and focus groups. In terms of private sector involvement, US-headquartered blockchain firm Consensys announced in October 2020 that it had been selected by the BOT as ‘a technology partner’ in developing a blockchain-based retail CBDC proof-of-concept prototype. More recent reports in June this year flagged the BOT’s engagement of German technology company Giesecke+Devrient (G+D).
The BOT states that for a retail CBDC to have maximum potential – and not adversely affect monetary policy transmission, financial institutions or overall financial stability – it will need to be ‘cash-like and non-interest-bearing’; intermediaries such as financial institutions should act as distributors; and conditions or limits for converting CBDC need to be established. This is to ensure that the CBDC does not compete with deposits nor trigger bank runs.
The central bank predicts that public demand for retail CBDC would ‘gradually increase over time’. Some respondents advised the BOT to focus on promoting consumers’ knowledge and understanding of the benefits and uses of CBDC, particularly on how it would differ from current e-payment options.
Wholesale and international CBDC progress
Thailand, which has a population of about 70 million, is relatively progressed in its CBDC explorations in respect of wholesale CBDC (digital currency for non-public use) and also cross-border use.
Earlier this year the central bank 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 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 BOT said in March. But the central bank also said that use of distributed ledger technology in its prototype had ‘limitations’, particularly in preserving transaction privacy and supporting large transaction volumes.
The BOT’s trials were a public-private collaboration between the central bank, Siam Cement Group (SCG) and Digital Ventures (DV), with support from ConsenSys. 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 has also been working with the equivalent authorities in Hong Kong, China and the United Arab Emirates 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 started working with the Hong Kong Monetary Authority (HKMA) on cross-border research (‘Project Inthanon-LionRock’) in 2019.
*** The BOT and Bank Indonesia (BI) launched a cross-border QR payment linkage between the two countries on 17 August.
Under this linkage, which is a pilot, consumers and merchants in both countries will be able to make and accept instant cross-border QR payments for goods and services, according to a jointly-issued press release. The aim is for a full commercial launch in the first quarter of 2022.
This connection is the first that links the countries’ retail payment system operators and is a milestone for the ASEAN (Association of Southeast Asian Nations) Payment Connectivity initiative. The BOT announced a similar cross-border QR payment linkage with Malaysia in June as well as co-announcing with the Monetary Authority of Singapore (MAS) the breakthrough bilateral linkage of Thailand’s PromptPay and Singapore’s PayNow real-time retail payment systems in April.
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‘Account-based CBDCs built on digital ID are way forward: BIS‘ – our news story (23 June 2021) on the Bank for International Settlements setting out its recommended approach to fundamental elements of CBDC design, stating a preference for account-based systems built on digital ID
‘“Game-changing potential”: Thai central bank assesses CBDC business payments trial’– our news story (on 17 March 2021) on the BOT speaking of ‘game-changing potential’ in an assessment of its first experiment in using digital central bank money for corporate payments and settlement
‘China and UAE join HK-Thai explorations of cross-border digital currency payments’ – our news story (on 24 February 2021) on the ‘m-CBDC Bridge’ research