Earlier this week the Bank of Thailand (BoT) announced plans to experiment with a wholesale Central Bank Digital Currency (CBDC). At this stage, the objective of Project Inthanon is collaborative learning. The BoT is partnering with R3 for technology and eight banks, including Standard Chartered Thailand and HSBC.
The aim is to develop a Proof of Concept (PoC) built using Corda, for wholesale funds transfer. The insights gleaned from the PoC will influence the design of Thailand’s future financial market infrastructure.
In addition, the BoT plans to create a PoC for scripless government savings bond sale. In other words, it wants to try a fully digitalized bond issue without any paperwork.
Recently the Bank of International Settlements (BIS) published its views about CBDC. They had strong reservations about a broad CBDC that includes retail, but were generally supportive about the idea of a wholesale CBDC.
A wholesale CBDC is a tokenized version of traditional reserve and settlement accounts. To date, most experiments use a digital depository receipt (DDR) model. This involves the central bank issuing digital tokens on a distributed ledger. Each token is backed by and redeemable for central bank reserves held in a segregated account.
On the one hand, the segregation is needed, particularly to ensure automated reconciliation. On the other hand, banks don’t like having to segregate money into pools because it restricts the use of those funds.
A wholesale CBDC aims to improve efficiency and reduce costs. However, the BIS noted that most experiments so far have not proven themselves superior to existing systems.
Other CBDC experiments
Several central banks have conducted CBDC experiments including the ECB, Bank of Canada (Project Jasper), the Bank of Japan (Project Stella) and the Monetary Authority of Singapore (Project Ubin).
Singapore / Project Ubin has been particularly open with its results. The most recent public phase involved prototypes using Corda, Hyperledger Fabric, and Quorum. And the code has been released as open source under the permissive Apache License. R3 also published additional details.
R3 outlined the benefits of a wholesale CBDC:
- Reduce systemic central-point-of-failure risks
- Reduce Herstatt-related risks (settlement risk where one party fails before completing its side of the transaction)
- Add value to the state’s ecosystem, fully enabling the promise of blockchains
- Drive increased velocity of business within the ecosystem
- Prepare the state for the next step in the evolution of payment systems