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Thai retail CBDC pilot: CBDC fosters innovation, but no plans for one

Thailand cbdc digital baht

Yesterday the Bank of Thailand released a report on its retail central bank digital currency (CBDC) pilot. It was generally happy with the results and believes a retail CBDC would promote innovation. However, it has no immediate plans to release a digital baht. Instead, it plans to open a sandbox for private programmable payments and tokenization.

Thailand’s trials are worthy of attention as it’s one of the most experienced central banks in this area. Interest in CBDC spiked following the announcement of Facebook’s plans for the Libra / Diem stablecoin. But by then the Bank of Thailand was already exploring CBDC as part of Project Inthanon. One of its experiments with the Hong Kong Monetary Authority (HKMA) evolved into project mBridge, the cross border CBDC platform that’s planning to launch a minimum viable product soon.

Meanwhile, the Bank of Thailand’s retail CBDC pilot that ran until October 2023 included two of Thailand’s largest banks, Krungsri and Siam Commercial Bank and payment provider 2c2p alongside 4,000 consumers and 140 merchants. Giesecke+Devrient was the technology provider and the central bank chose a token based solution based on a centralized ledger. 

However, G+D’s Filia also supports DLT as the underlying ledger, and the central bank said the choices would be reevaluated in the future based on technological progress. “Potential technology choices could be a hybrid model of centralized and decentralized systems, or the development of interfaces to be compatible with seamless smart contract connectivity,” said the central bank.

Apart from straightforward retail payments and P2P payments, the programmable use case trialed was the ‘Grow Up Wallet’. This allowed parents to restrict how their children spent money in their CBDC wallets. Plus, the parents could adapt the rules.

CBDC Challenges

Overall, the Bank of Thailand was happy with the results and concluded that a CBDC could be suitable for promoting innovation. 

Two challenges stood out. The payment provider 2C2P had to access the CBDC via the banks and was charged transaction fees. Hence, the central bank considered allowing direct access to non-bank payment providers.

The second major challenge relates to offline CBDC. The G+D solution was capable of supporting multiple consecutive transactions. It used physical cards enabled with Bluetooth and NFC, but the card connectivity was sometimes unstable.

The bank also identified a third challenge, even though it didn’t encounter any problems. Theoretically, if for some reason, transactions are left pending (they were not), to prevent double spending this may demand central bank involvement.

A member of the Bank of Thailand team observed a CBDC could “foster competition among financial service providers, enable new financial innovations, and pave (the) way for more capable and cost-efficient services available to the public in the future.”

While the central bank doesn’t plan to launch a CBDC, the new Thai government committed to a substantial cash giveaway during the last election. The plan was to provide the money as a digital token. There’s an ongoing debate about how this fits with a responsible national budget.

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