As digital technology continues to transform the financial landscape, central banks around the world are exploring the potential of central bank digital currencies (CBDCs).
In Thailand, Bank of Thailand (BOT)has been at the forefront of this movement, continuously researching and testing the feasibility of retail CBDCs since 2018.
Thailand’s latest milestone, the Thailand Retail CBDC (RCBDC) Pilot Program, marks a significant step forward in understanding the impact of digital currency on the Thai economy.
Thailand’s CBDC journey
BOT’s journey to CBDCs began in 2018 with project Inthanon, which focused on creating a decentralized real-time gross settlement (RTGS) prototype using wholesale CBDCs.
The project has evolved to include enhanced functionality, cross-border fund transfers, and a CBDC pilot program for businesses.
In 2022, BOT launched a retail CBDC hackathon to encourage public participation and foster public-private collaboration in the development of CBDC proof-of-concept initiatives.
This is, Retail CBDC Pilot Program 2023 saw real value CBDC testing and exploration of innovative use cases by retail users and merchants.
Pilot Objectives and Design of the Thailand Retail CDBC Pilot Program
The Thailand Retail CBDC Pilot Program was driven by four main objectives. Assessing the technical readiness and basic capabilities of RCBDCs, assessing the potential of RCBDCs to leverage financial innovations, investigating the feasibility of open access to CBDC infrastructure for both banks and non-banks, and determining individuals. and the feasibility of RCBDC as an alternative payment infrastructure for businesses.
To address these goals, BOT conducted pilot testing in a limited environment, split into a Foundation track and an Innovation track.
The Foundation Track focused on testing the core capabilities of CBDCs, the feasibility of open access, and their potential as alternative payment infrastructures.
This involved real value transactions in a ring-fenced environment between banks and non-bank participants acting as financial service providers (FSPs) and selected users and merchants. The innovation track consisted of exploring CBDCs for public engagement and financial innovation.
BOT invited the public and participating FSPs to showcase how RCBDC can drive innovation and value-added payments beyond the limitations of existing infrastructure.
Technical design and testing scope
BOT collaborated with Giesecke + Devrient Advanced52 GmbH (G+D) to select its Filia solution for its retail CBDC pilot in Thailand.
This decision was based on the solution’s flexible ledger selection, enhanced privacy through its token-based architecture, built-in programmable payment functionality, and ease of integration.
The Foundation Track tested the core functionality of the CBDC from the end of 2022 to September 2023, with the participation of three FSPs, approximately 4,000 individual users, and 140 participating merchants.
Tested transactions include retail money transfers between individuals and retail payments with merchants to purchase goods and services.
The Foundation track also featured testing of offline CBDC capabilities, with the aim of assessing the potential of CBDCs to enhance the resilience of payment systems in scenarios involving internet dead spots, temporary shortages, or disasters. .
BOT utilized a fully offline CBDC solution to support continuous offline payments using physical smart cards and smartphones.
Pilot survey results
The Thailand Retail CBDC Pilot Program provided valuable insights into various aspects of CBDC implementation, including business, legal, technical, accounting, and operational considerations.
The pilot revealed that the CBDC design works well for minting, distributing and dissolving CBDC, and is well integrated and interoperable with existing payment infrastructure.
BOT and relevant government agencies held dialogues to address legal, accounting, and AML/CFT aspects related to CBDC implementation.
The Retail CBDC efficiently maintained its ability to process retail payment transactions without significant system errors. The CBDC design demonstrated the potential to scale innovation through common functionality and token-based nature.
Pilot results showed that RCBDC can support access and integration for banks and non-bank FSPs and address existing pain points in payment infrastructure. Additionally, Retail CBDCs have demonstrated their potential to serve as an alternative channel for retail payments and handle large transaction volumes.
Challenges and considerations
Despite the promising findings, the retail CBDC pilot program also revealed several challenges and considerations that need to be addressed.
Non-bank business models remain a concern as non-banks still have to rely on banks and face transaction fees when exchanging Thai Baht for RCBDC, further exploring sustainable business models for non-banks There is a need.
Handling ongoing transactions and double payments will also be a challenge, as the BOT’s role as a validator may require involvement in retail transaction management, especially in pending or failed transactions.
Limitations of offline CBDCs remain to be addressed, including unstable connections between offline devices and potential cyber threats to retail CBDCs stored on offline devices for long periods of time.
The positioning of retail CBDCs for public use is also a consideration, as the design and positioning of RCBDCs must consider public needs beyond the capabilities of existing payment infrastructure to facilitate adoption. .
Establishing the right governance model to bring innovative features to the common CBDC capabilities available to all FSP players remains a challenge. Additionally, when starting an RCBDC, relevant laws and regulations must be considered and adjusted.
Retail CBDCs as public infrastructure need to consider business and service formats along with business model conditions to support diverse players and foster competition. The selection of technology solutions for CBDC implementation will also need to be re-evaluated in the future, taking into account adaptability, cyber risks and threats.
The future of CBDC in Thailand
The Retail CBDC Pilot Program was an important step in Thailand’s journey to understand the potential of digital currencies.
The insights gained from the pilot, especially regarding CBDC design and technology, will serve as a valuable reference for future efforts. payment system development.
Although BOT has no immediate plans to formally issue an RCBDC, lessons learned from the pilot will be leveraged to support future projects such as programmable payments and asset tokenization by the private sector.
As Thailand continues to explore the potential of CBDC, close cooperation between the BOT and the private sector will be essential in shaping the future of Thailand’s financial landscape.
The Retail CBDC Pilot Program lays the foundation for further innovation and development of digital currencies, placing Thailand at the forefront of this global financial revolution.
As the world focuses on the evolution of CBDCs, Thailand’s experience and insights will undoubtedly contribute to a broader understanding of the opportunities and challenges associated with these digital assets.
Featured image credit: Edited from unsplash
