Today the Bank of Thailand confirmed its previously announced plans to launch a retail central bank digital currency (CBDC) pilot this year. However, it reiterated that it has not committed to proceeding with a CBDC issuance.
The central bank completed testing a prototype using technology from central bank provider Giesecke+Devrient (G+D), and it is this technology that will be tested from the end of 2022 through to mid-2023. Additionally, the central bank opened applications for a hackathon to explore creative applications, inviting submissions by September 12.
The pilot plans to involve around 10,000 users within limited locations to use the digital baht to pay for goods and services. Participation will include two banks, Bank of Adyudhya and Siam Commercial Bank, and payments firm 2C2P Thailand. The central bank refers to this pilot as the Foundation track.
The CBDC Hackathon to uncover innovative use cases is part of the Innovation track of the pilot.
CBDC Foundation track is not blockchain-based
The Bank of Thailand is planning a two-tier CBDC with the central bank acting as issuer and redeemer and also providing a centralized mechanism to verify the CBDC, rather than using a blockchain or distributed ledger (DLT). Blockchain technology will be considered in the future when it is deemed sufficiently performant. For now verification will be done by checking a serial number, similar to that found on bank notes. That’s not surprising, given G+D’s background is servicing central banks with technology for issuing bank notes.
The CBDC is token-based rather than account based, providing some level of privacy. But know your client (KYC) and anti-money laundering (AML) procedures are required.
Banks and payment firms will act as distributors of the CBDC. In some cases, they may provide wallet services, but the central bank also envisages separate wallet providers acting as custodians.
Plans to test CBDC offline usage and programmability
Apart from the typical mobile wallet payments, the central bank also plans to perform various tests for offline usage, especially using physical cards with built-in wallet functionality. These can be used to make payments to merchants using NFC technology. But the central bank also plans to use a device that enables card-to-card payments.
In terms of programmability, there are plans to test several avenues, including restrictions on:
- the amount that can be stored in a wallet
- the maximum transaction value
- which wallets can receive money (where money is intended for a specific purpose)
- wallets that are suspended.
But the aim is for developers to experiment with programmability.
Apart from offline usage and programmability, the pilot aims to test performance, security, privacy, and interoperability.
Thailand’s long CBDC track record
While this pilot will target a retail CBDC for consumers, the Bank of Thailand has extensive CBDC experience, including for wholesale CBDC and a retail CBDC for corporate use.
One of its wholesale CBDC trials as part of Project Inthanon was for cross border payments with Hong Kong (Project Lion Rock). After successful experiments, the central banks of China and the UAE joined the initiative alongside the BIS, and it morphed into the Multi-CBDC Bridge Project (or MBridge).