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Bitcoin and other cryptocurrencies have become immensely popular as a new type of financial asset but are considered a potential threat to the existing monetary systems. Central bank digital currencies (CBDC) are being studied by various nations to counter this threat, and Thailand recently announced that it is launching a retail CBDC pilot later this year.
Launched as Project Inthanon, the Bank of Thailand (BOT) has been experimenting with CBDCs since 2018 in partnership with blockchain firm R3 and eight financial institutions. The central bank developed a proof-of-concept for a real-time gross settlement (RTGS) system using distributed ledger technology. In the next phase, BOT partnered with the Hong Kong Monetary Authority under the Project Inthanon-LionRock for a proof-of-concept cross-border payments network. The partnership was expanded in 2021 to include the Digital Currency Institute of the People’s Bank of China, the Central Bank of the United Arab Emirates and BIS Innovation Hub, and was renamed as mBridge project.
The central bank started testing retail CBDC in 2021 and has completed a proof-of-concept for the same. It now expects to launch a pilot to assess the system’s efficiency and safety but does not plan to widely issue the retail CBDC anytime soon.
Retail CBDC in Thailand
A retail CBDC is a digital form of currency comparable to bank notes issued by the central bank and can be used for online as well as offline transactions. The Thai central bank is now exploring real use cases of its CBDC in the private sector.
In a statement, BOT said that it will “assess the benefits and associated risks from the Pilot to formulate related policies and improve the CBDC design in the future.”
The pilot will be run in two phases. The first phase, called ‘Foundation track’, seeks to test CBDC for cash-like activities such as payments for goods and services. This trial will be conducted in limited areas with a scale of 10,000 retail users and is scheduled to begin at the end of 2022 and will run till mid-2023.
The second phase is dubbed the ‘Innovation track’, focusing on innovative use cases for CBDC. This will be done through a ‘CBDC Hackathon’ that started on August 5. Financial institutions in the country will then mentor the participants of this hackathon.
While the trial is expected to end next year, the BOT has clarified that it has no plans to issue retail CBDC, “as the issuance requires thorough consideration” of risks and benefits for the financial system in general.
Thailand’s CBDC development
Several central banks around the world are working on CBDCs, and China is leading the charge with research and development. However, PwC Global CBDC Index 2022, named BOT and HKMA’s joint initiative as the best wholesale CBDC project in the world.
A digital payments infrastructure based on CBDC can provide fast and reliable payments in Thailand, along with instant settlement and no processing delays. If Thailand issues a retail CBDC, the citizens will easily gain access to a stable digital currency, reducing the number of unbanked populations, while increasing the efficiency of government policies and pay-outs.
