As revealed by PwC in their Global CBDC index 2022, more than 80 per cent of global banks are evaluating and assessing the role and need of digital currencies and simultaneously planning to launch them in respective countries. The report further underlined that Thailand’s central bank is currently studying which retail CBDC models are suitable. A one-tier model allows the central bank to issue, regulate, and manage CBDC, while in a two-tier model, the central bank assigns intermediaries such as commercial banks to issue CBDC under its regulations.
Amid this, there was a vital announcement made by the Bank of Thailand the previous year that it will be conducting a retail Central Bank Digital Currency (CBDC) pilot at the end of 2022. The bank deemed it necessary to extend the scope of retail CBDC development to a pilot phase in which real-life applications will be conducted in cooperation with the private sector within a limited scale.
Yesterday, a new development took place, Thailand has partnered with two banks and a Singapore payment service to start a pilot program for its retail central bank digital currency (CBDC). As reported, it will be in the regulatory sandbox, it is also revealed that three payment providers will be taking part and the project will involve up to 10,000 users and run through August.
The central bank is collaborating with the Bank of Ayudhya (Krungsri), Siam Commercial Bank and 2C2P (Thailand) Co to test the retail CBDC. Krungsri is one of the first financial institutions to start operating a pilot test for retail. In the pilot test, dubbed CBDC Krungsri, the bank invited its staff and around 100 merchants located near its headquarters to test the digital currency.
The bank expects the number of participants to increase and set a target of 2000 staff joining the pilot project. As mentioned by the senior official, the staff members participating in CBDC Krungsri need to install a mobile application and add money to it as an e-wallet, then transfer the money into a form of digital money called ‘Digital Baht”. One CBDC is worth one Baht. Users can then pay for goods and services at participating stores by scanning a QR code.
For retail CBDC spending in a limited amount, authorized banks will allow participants to try it out via the CBDC wallet application as mentioned in the above paragraph. For this, Siam Commercial Bank uses the name “CBDC SCB Wallet” and Bank of Ayudhya uses the name ” CBDC Krungsri” which is not yet an official name but is called in this trial first.
As highlighted by a senior official, Although using Retail CBDC may be similar to spending via PromptPay, using Retail CBDC has different benefits from PromptPay. In a country, where a Retail CBDC is used, allows spending limits to meet its objectives. For example, student welfare can restrict the use of Retail CBDCs to be spent only in education-related outlets. The use of the Retail CBDC will limit the use, such as requesting Home Loans customers can use Retail CBDC only for related stores, such as home furnishings stores.
Reduce production costs of coins and banknotes This test of the use of Retail CBDC may be another important step for Thailand to have another payment system in addition to the PromptPay system, which is considered a payment system.
However, the BOT reiterates that Retail CBDC is currently a pilot to learn, not a pilot to launch. This test is limited to about 10,000 people only and has not been used on a large scale. in which the test group has already been defined.
It is a major step taken by another South Asian country after Hong Kong to establish a strong ground for digital assets. As reported by IMF, The Asia-Pacific region covers countries in a wide spectrum of income groups and stages of financial development; thus, it is not surprising that there is great heterogeneity in their progress toward developing CBDCs. The interest in CBDCs has significantly grown in recent years, as captured by the number of times CBDCs are mentioned in speeches.
The rapid increase in considering a CBDC in the Asia-Pacific region is not limited to the more advanced economies with developed financial markets. While China has been at the global forefront of experimenting with CBDCs, emerging markets, such as India and Thailand have made rapid progress, and several low-income countries (LICs) and Pacific Island Countries (PICs), such as Nepal and the Marshall Islands, are looking into research and development. The countries are majorly experimenting to establish and develop a new financial ecosystem.
It is important to note that, in 2018, the Bank of Thailand revealed its plans to create a wholesale central bank digital currency (CBDC). It has since collaborated with the Bank for International Settlements on the mBridge cross-border payment project and partnered with the Hong Kong Monetary Authority on the Project Inthanon-Lion Rock initiative. Though there are risks associated with CBDCs here, a well-regulated system will counter the related issues and embrace benefits. Thus, the new and early endeavor of Singapore will bring a change in payment and financial ecosystem.