February 29, 2024

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Retail Central Bank Digital Currency Development in Thailand

Mathee Supapongse, the Deputy Governor of the Bank of Thailand (BOT), recently said that the BOT had successfully finished the first pilot using wholesale central bank digital currencies (Wholesale CBDC) for real-value cross-border payment transactions.

This was part of the Multiple Central Bank Digital Currency Bridge (mBridge) Project, which is the next phase after Project Inthanon-LionRock Phase 2, which was done in 2021.

The announcement was made together with the Hong Kong Monetary Authority (HKMA), the Central Bank of the United Arab Emirates (CBUAE), the Digital Currency Institute of the People’s Bank of China (PBCDCI), and the BIS Innovation Hub Hong Kong Center (BISIH).

The mBridge pilot ran from August 15 to September 23, 2022. It covered three types of transactions:

  • Issuance and redemption of CBDC between commercial banks and central banks;
  • Cross-border payment in local CBDC between commercial banks; and
  • Cross-border exchange of local CBDC for foreign currency CBDC between commercial banks.

Twenty commercial banks from four countries, including five from Thailand, took part in the pilot. Together, they used the mBridge platform to complete exchange transactions and cross-border fund transfers in four different currencies on behalf of their corporate clients to support international trade.

During the pilot, a total of 164 cross-border transactions worth more than S$22 million (THB 827 million) were made. In the project report called “Project mBridge: Connecting Economies through CBDC,” more information is given.

By getting rid of the correspondent banking network, the mBridge platform showed that cross-border transactions using multi-currency CBDC are more efficient than the current system. This led to a) a Significant reduction of cross-border transfer times from 3 to 5 days to a few seconds; and b) Making it possible for participating banks to connect directly with each other, which could lower the cost of cross-border transactions.

The platform can also be used to c) Reduce settlement risk and d) Support the use of local currencies when making payments between countries.

The mBridge project will keep building and testing technology to improve the platform’s current features and add new ones, all while taking policy, regulatory, and legal implications into account. After this, the BOT will think about doing more tests in more real-world settings.

Meanwhile, during the recent BOT Digital Finance Conference 2022, the BOT talked about the progress of the Retail Central Bank Digital Currency (retail CBDC).

The BOT has been working on CBDC projects for both wholesale transactions between banks and retail transactions between businesses and people (retail CBDC). It’s clear that CBDC has the potential to grow into an open infrastructure for all kinds of players, as well as a way for citizens to get a safe digital currency and for innovation to keep going.

A retail CBDC hackathon has been conducted to solicit ideas for intriguing use cases for retail CBDC extensions. It is anticipated to start testing limited retail CBDC applications in collaboration with the private sector as of December 2022.

With the ability to programme (Programmability), which is looking for use cases from more than 100 teams to participate. The retail CBDC hackathon is an excellent illustration of how the BOT and the private sector collaborate, utilising one another’s experience to produce innovations that might genuinely help the nation’s financial system.

According to reports, CBDC will not be a substitute for actual cash but rather a supplement that will make it easier and safer for users to acquire money. It improves the stability of the financial system and increases access to fundamental financial services. Before using the CBDC, however, regulators must understand all legal and regulatory matters.

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