September 26, 2020

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Thailand and HK to Launch Two-Tier Digital Token

Thailand Hong Kong Two Tier Digital Token

The monetary authorities of Thailand and Hong Kong are readying themselves to launch a two-tier digital token, part of the process for creating a prototype for cross-border fund transfers between the two economies using financial technology (fintech).

The first tier of the prototype, known as Project LionRock-Inthanon, involves the issuance of a token to Hong Kong banks taking part in the pilot programme, according to a spokesman of the Hong Kong Monetary Authority (HKMA).

The second tier involves the banks distributing the tokens to their corporate customers for settling wholesale payments with other banks, or with other companies.

The two-tier system is a step forward in Project LionRock-Inthanon, which was established in November based on a fintech collaboration between HKMA and Bank of Thailand in May 2019.

The use of the blockchain-backed token is expected to speed up currency settlement between the two economies – with US$19.6 billion in bilateral trade last year – giving companies and banks more competitive exchange rates for the Hong Kong dollar and the Thai baht.

It’s also a different usage case compared with the digital currency under development by China’s central bank, which on replacing coins and banknotes in circulation to support retail transactions, according to HKMA’s senior executive director.

Project LionRock is focused on streamlining cross-border transfer and payment between banks and companies, he said.

The prospect of issuing a central bank digital currency for retail purposes in Hong Kong is limited, as the region has so many retail payment services (ranging from) credit card, debit card, and (others).

Using blockchain, the HKMA’s cross-border payment platform under the “depositary receipt corridor network” enables companies in both Hong Kong and Thailand to settle wholesale payment with each other directly, as the blockchain technology overcomes the shortcomings with the existing correspondent banking model, which involves multiple numbers of intermediaries that often result in payment delays.

Thailand Pushing the Use of DLT and Blockchain

While the future of blockchain currently seems uncertain following the crash in cryptocurrency prices, enthusiasm continues to abound for the potential of the ground-breaking technology, OpenGov Asia reported earlier.

Global experts believe that blockchain will achieve mass adoption in the next 3-5 years, but without mass adoption, many of these great projects will die because they will not be generating sufficient revenue. The key to blockchain’s survival is widely adopted use cases.

Despite many innovative uses for the technology being touted by start-ups, there has yet to be a standout use case that makes blockchain truly indispensable to enterprises or the public, or at least enough of public good to offset the massive environmental toll of cryptocurrency mining.

In Thailand, blockchain is being tested as a way to trade solar energy by the state-owned renewable energy firm BCPG.

Massive amounts of energy from rooftop solar are wasted because people have to go to work or leave the home and the energy is not used, one expert noted.

During summertime, an empty school with rooftop solar panels can sell surplus power to other buildings through smart contracts on the blockchain.

With the technology, buildings that generate their own energy can sell excess, unused power either back to the electric grid or to other homes and businesses through a peer-to-peer model.

The system is already being used at Chiang Mai University, where electric buses can both take and give back electricity to the school’s power grid.

Thus, it makes sense that Thailand would choose to have the tech scaled-up to help in cross-border trading. While blockchain is undeniably an incredible technology with tremendous potential, specifically for countries in the ASEAN region, mass adoption will depend on how well ASEAN governments develop policies for regulation and security.