The Bank of Thailand has published a paper on central bank digital currency (CBDCs) entitle the Way Forward for Retail Central Bank Digital Currency in Thailand.
Thailand has been a fairly innovation-friendly nation in regards to Fintech. Several years ago, Thailand participated in Project Inthanon, a CBDC initiative. The project developed a prototype CBDC in partnership with R3 and Wipro (NYSE: WIT). The Bank of Thailand also worked with eight commercial banks as part of the development of the CBDC which could decentralize interbank settlements or “real-time gross settlement.” The eight banks included HSBC, Standard Chartered, Thanachart Bank, Siam Commercial Bank, Bank of Ayudhya, Krung Thai Bank, Bangkok Bank, and Kasikornbank.
This new paper published by the Bank notes that Thailand cannot go it alone and outlines their approach in considering retail CBDC issuance and what may lie ahead.
The key findings from the paper may be summarized as follows:
- The motivation for creating a CBDC is the assumption that privately issued digital currencies may become widely adopted and systemically important. This could put Thailand’s monetary stability at risk.
- The most promising benefits are a safe and secure currency that supports inclusion and financial innovation
- Risks include:
- 1) disintermediation of financial intermediaries,
- 2) exacerbation of bank runs especially in times of financial crises, and
- 3) maintenance of high-security standards and public trust in the CBDC system. Nevertheless, these concerns can be mitigated through the design of the CBDC itself and other measures.
- An initial assessment suggests a two tier approach for a digital Thai Baht that preserves the role of financial intermediaries and payment service providers, while utilizing their existing resources.
- The CBDC could be initially designed as non-interest bearing akin to cash, with specified limits for holding, transacting, and conversion.
- The CBDC should aim to harness the strengths of both centralized and decentralized technologies. While centralized technology offers advantages in terms of scalability and performance, decentralized technology offers greater resiliency and its cryptographic techniques can help enhance security.
- End-users should bear zero-to-minimal transaction costs when transacting with CBDC, and the CBDC system should be open to private sector programmability to drive financial innovation.
- There are three main capacities that would be crucial for successful CBDC implementation, namely
- 1) user accessibility,
- 2) digital infrastructure, and
- 3) legal and regulatory frameworks. Collaborative preparation efforts with relevant agencies on building capacities across these three areas will be of utmost importance going forward.
The paper states that there is no immediate need to issue a CBDC but it is critical to prepare for an eventual issuance.
The paper is embedded below and available for download here.
