Photo: AFP/Jack Taylor
Péter Klemensits
21/06/2023 08:00
Maintaining monetary stability is a priority in many countries, and it is no coincidence that major powers such as China, Russia and Brazil have been experimenting with CBDCs for some time. In addition, of course, a number of smaller countries have made significant progress in this area, such as Thailand in South-East Asia.
In Thailand, experiments with digital central bank money date back to August 2018, when the Bank of Thailand (BOT) developed a CBDC prototype in partnership with R3 and Wipro, and with the involvement of commercial banks, to launch a project called Inthanon. The Inthanon project aimed to enable domestic money transfers within the country's interbank system by issuing CBDC tokens.
The first phase of the project focused on building basic payments infrastructure, while subsequent phases explored the application of blockchain technology to other functions. In April 2021, the Central Bank of Thailand stressed in a report that the success of private assets poses a threat to "monetary sovereignty and financial stability". For this reason, the central bank will begin testing protocols for the digital baht during 2022. In August 2022, the central bank had already announced that it expected to test the retail digital currency as an alternative payment option from the end of the year until mid-2023. During the testing, the retail Central Bank Digital Currency (CBDC) will be used to conduct cash-like transactions, such as payments for goods and services, in limited areas and among around 10,000 retail users, the central bank said.
The testing phase can be divided into two phases. The first phase, the foundation phase, will focus on evaluating the efficiency and security of the system, including the technological design. In this phase, the CBDC will be used to conduct cash-like transactions, such as payment for goods and services, in a limited area and on a limited scale selected by the BOT, with approximately 10,000 retail users, as well as by Bank of Ayudhya Public Company Limited, Siam Commercial Bank Public Company Limited and 2C2P (Thailand) Company Limited. This phase of testing is expected to last until mid-2023. The second, innovation phase, will focus on programmability, facilitating the development of innovative use cases for CBDC, resulting in new financial services for a wide range of customers. This will help the BOT to develop and improve the design of the CBDC to suit the Thai context in the future.
The Central Bank of Thailand is fully aware of the advances in the digital economy and it is no coincidence that it has been among the first in the world to start experimenting with CBDC, while not underestimating the difficulties associated with its implementation. Last October, the Governor of the Central Bank of Thailand, Sethaput Suthiwartnarueput, stressed that the institution was keen to gain as much experience as possible with the CBDC and that it would probably take several years before the currency was ready to be introduced, given the risks and dangers.
The author is a senior researcher at the Eurasia Center
Technological efficiency: payments and transfers can be made in real-time without intermediaries such as banks and clearing agencies.
Financial inclusion: secure money accounts with central banks can be an effective means to achieve this, allowing all citizens of legal age to have a basic account for free or at a minimal cost.
Cost efficiency: by shifting spending from physical facilities to digital banking, financial service providers can save USD 400 billion in direct costs each year.
Reduction of illegal activities: the CBDC will allow tracking of the whereabouts of individual cash units, which will help the central bank to prevent illegal activities.
Proof of transactions: digital records that prove transactions between two parties avoid cash-related problems such as exchanges, theft and disputed testimony.