Thai Central Bank Creates its Cryptocurrency（CBDC）
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Thailand joins countries like Hong Kong and Canada to develop its digital currency.
The collaboration between Thailand, R3 technology, and eight other financial institutions will see to the launch of Thailand’s CBDC.
The R3 technology developer will develop the digital currency based on a distributed ledger technology (DLT) called Corda.
Since this CBDC, the trading volume of domestic cryptocurrency lac1 in Thailand has grown from about $143 million in 2018 to $2.49 billion in 2020.
As of 2022, no country has fully launched its digital currency.
According to the Central Bank of Thailand, the public trial of the CBDC will occur in mid-2022.
The entire project that will see the digital currency launch and contain the technical details is “Project Inthanon.”
The Project Inthanon is a Central Bank Digital Currency that uses the proof-of-concept mechanism for wholesale domestic and cross-border funds transfer.
Part of the project is also called “Project DLT _script_less bond.
The launch of the CBDC will come in phases.
In the first phase, all partners, including the technology company and financial institutions, will collaborate to design, develop and test the proof of concept prototype.
The entire phase of the project seeks to explore the potential benefits of the distributed ledger technology in enhancing the efficiency of the Thai financial market infrastructure.
Keywords: Thailand, Central Bank, digital currency, CBDC, distributed ledger technology (DLT), Inthanon.
The wide adoption and growing popularity of the cryptocurrency leave Government institutions with no choice but to play active roles in the ecosystem.
Over the years, we have seen countries like Hong Kong and Canada develop their own Central Bank Digital Currency (CBDC) through their Central Banks. Recently, Thailand is joining the League of Nations to introduce its Digital Currency.
In this article, we shall identify the exploits of the Bank of Thailand, the partnership with R3 technology, and eight other financial institutions to launch its Central Bank Digital Currency (CBDC).
Let's begin!
The Background Of Developing CBDC
The Central bank digital currency (CBDC), is the equivalence of a fiat currency, however, a digital equivalence. While fiat currencies such as the dollar, euros, and the Thai Baht are not backed by any physical commodity or value, the digital currencies developed by Central banks across the country are backed by their fiat currency.
Research by the Bank of International Settlement shows that over 80% of Central Banks have shown interest in developing their Central Bank Digital Currency, what could be the background to this wide adoption and development?
The major background to the development is that the cryptocurrency that has received unprecedented attention is volatile and lacks government backing. No matter how high the price value goes, it can crash at any time.
It is on this premise that the Government of every nation is developing a digital currency backed by their fiat equivalence, recognized as legal tender, has government control, and uses distributed ledger technology (as cryptocurrencies).
Thailand, being one of the recent developers of a Central Bank Digital Currency has received the spotlight in recent times.
Thailand’s Central Bank Governor said, “This is the usual”. This statement buttresses the fact that Thailand's CBDC is the same as that of other countries.
Like every other country, Thailand had an initial pilot plan scheduled for the second quarter of 2022. Due to “vague terms like design and underlying technology”, the testing has been postponed to the fourth quarter of 2022.
Most countries are in the trial phase of their digital currencies and have faced similar issues. It is either they are postponing the trial period or trying to get some amendments right.
Conclusively, Thailand will start with the test of the Central Bank Digital Currencies for deposits, withdrawals, and transfers. The initial pilot plan will be tested as a retail CBDC. That is, an alternative payment method for “cash-like activities within a limited scale.”
This initial pilot plan is similar to that of China's digital Renminbi and Nigeria's eNaira which will be initially deployed for retail transactions on a limited scale. It is the success of the CBDC at this stage that will set the tone for wider adoption and wholesale use such as interbank settlements and cross-border transfers.
Thailand And Cryptocurrency
In March 2022, the Thai Security and Exchange activities80, SEC, announced the ban on Cryptocurrency as means of payment. The announcement revealed that the use of any form of crypto token for payments and transactions will cease by the first of April 2022. However, Crypto trading and exchange will continue to be a legal venture.
The announcement comes at a time when the Thai government is renewing its efforts towards regulating the crypto market. The regulation became necessary due to the increase in the use of digital assets for money laundering, the volatility of the crypto market, and high transaction fees.
While the ban on cryptocurrency for payment will no doubt affect enthusiasts and holders in the country, the Thai Government believes it is in the best interest of its people. Also, there is the need to reduce the dominance of such assets that have no Government control. Cryptocurrency falls in this category.
The Bank of Thailand’s Central Bank Digital Currency (CBDC)
In August 2018, the Central Bank of Thailand announced its collaboration with R3 technology and eight other financial institutions. The partnership is towards creating a Central Bank Digital Currency.
According to the announcement, the digital currency will be based on a distributed ledger technology (DLT) called Corda. It will be developed by R3 technology, an enterprise-focused tech company with extensive experience in leading, consulting, and implementing distributed ledger technology (DLT) projects.
The eight other financial institutions that are collaborating with Bank of Thailand and R3 are Bangkok Bank Public Company Ltd, Krung Thai Bank Public Company Ltd, Bank of Ayudhya Public Company Limited, Kasikorn bank Public Company Limited, Siam commercial bank public company Limited, Standard Chartered Bank (Thai) PLC, Thanachart Bank PLC, and the HSBC.
According to the officials of the Bank of Thailand, the digital currency prototype is for interbank payments, and the digital currency has the potential to form the foundation of Thailand’s future financial infrastructure.
Since the Bank of Thailand proposed this Central Bank Digital Currency (CBDC), the trading volume of domestic cryptocurrency lac1 has grown from about $143 million in 2018 to $2.49 billion in 2020. Aside from embracing the digital asset ecosystem, the rise in Thailand’s crypto market is attributed to speculative investment and new regulations.
It is essential to know that no country is yet to launch a fully functional Central Bank Digital Currency (CBDC). With the recent steps by Thailand, they are closer to actualizing the full potential of a CBDC. The Bank of Thailand looks forward to the public trials of the CBDC by the second quarter of 2022.
Now, let us highlight the technical details of the digital currency.
Project Inthanon And Project DLT Scripless Bond
Image: Crowdfund insider
While many experts will consider the digital currency being developed by the Bank of Thailand as “Project Inthanon,” others classified it into two, namely “Project Inthanon and the Distributed Ledger Technology (DLT) Scripless Bond.” However, since Project Inthanon will be powered by the Distributed ledger technology built by R3 technology, we can consider the entire project as ‘Project Inthanon.”
The Project Inthanon is a Central Bank Digital Currency that uses the proof-of-concept mechanism for wholesale domestic and cross-border funds transfer. The Project DLT scripless bond will be deployed to increase efficiency for saving the digital currency's bond registration and sales process.
The Project Inthanon and DLT Scripless Bond seek to identify the CBDCs project design, key findings, and future considerations of the digital currency. The project promises an enhanced financial infrastructure by enabling the transfer of digital values directly among parties, immutable record keeping, and programmable automation via smart contracts.
The Project Inthanon initiative will be implemented in phases. In the initial stage, the project seeks to explore the adverse effects and the potential benefits of distributed ledger technology in enhancing the efficiency of the Thai financial market infrastructure.
All partners, including the technology company and financial institutions, will collaborate to design, develop and test the proof of concept prototype. This prototype will support wholesale funds transfers using the CBDC tokens when it becomes fully functional. This first phase will be completed in 2019, and the liquidity saving mechanism and risk management will be tested.
The project's next phase will test capabilities for broader use like cross-border and third-party funds transfers. The testing of these phases will generate insights that will guide the project's future trajectory. It will also be explored to reap the benefits of distributed ledger technology (DLT) and digital currencies supporting interbank transactions.
Conclusion
Image: Electronic Payments International
The Bank of Thailand is launching its own Central Bank Digital Currency to ensure it becomes a stakeholder in the cryptocurrency ecosystem. Establishing this digital currency will help facilitate interbank payments, virtual transactions, and other features of a decentralized financial service.
It is essential to know that the Government of Thailand is taking another step toward embracing the cryptocurrency ecosystem. One of these steps includes the launch of Promptpay, a digital platform for consumers to pay bills and conduct other financial transactions.
While there is no specified date for the full launch of Thailand’s Central Bank Digital Currency, the Government is working round the clock and conducting tests at every interval to ensure the “perfect” project is birthed. The initial pilot plan is expected to start by the fourth quarter of 2022 (against the earlier scheduled period of the second quarter, 2022).
Industry players and enthusiasts are, however, optimistic about how the project will turn out when it is fully and publicly unveiled.
Author: Valentine. A, Gate.io Researcher
This article represents only the researcher's views and does not constitute investment suggestions.
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