The Bank of Thailand (BOT) has announced a pilot project for its Central Bank Digital Currency (CBDC) with the largest building material provider in the country.
The bank announced in its official statement that before launching the CBDC system in the country, it is planning to test it for business uses with large enterprises. For this, they have partnered with Siam Cement Group (SCG) which is the largest cement and building materials company of Thailand and a country-based fintech firm Digital Ventures Company limited for the prototype test.
The pilot project for the payment prototype system is expected to start in July 2020 and the initial test with SCG can be concluded by the end of this year. The bank expects to build the CBDC system on the knowledge of Project Inthanon, which itself is a collaborative project involving eight leading Thai financial enterprises and the Bank of Thailand for strengthening the readiness in the financial sector of Thailand.
The Thai Central bank can also collaborate with seven other financial institutions which are Krung Thai Bank Public Company Ltd., Thanachart Bank Public Company ltd., Bangkok Bank Public Company Ltd., Standard Chartered Bank (Thai) Public Company Ltd., KasikornbankPublic Company Ltd. And HSBC from project Inthanon, but it is still not confirmed by the BOT.
The CBDC project has been developed by Blockchain Consortium R3 and with its help, the bank expects a more efficient financial structure with increased flexibility in fund transfers and faster payment between suppliers. This will happen because having its own cryptocurrency, BOT will be able to reduce it’s cost and validation time due to less intermediation process. The bank says that testing this will broaden the scope of the CBDC system and will help incorporate huge audiences and users starting with large corporates.
The efficiency of blockchain technology is seen to have the potential to revolutionize foreign exchange and the distributed ledger technology (DLT) can make the countries race for producing there own CBDC. It is expected that this revolution will bring an end to money laundering, frauds, and corruption in the entire world. CBDC will also lower the cost of cash, counter new digital currencies, manage market contestability, and discipline.
Despite so many benefits, the CBDC system can prove detrimental in some senses. There can be disintermediation in the banking sector and people can switch from deposits to CBDC which can also increase the running risk. The central bank’s balance sheet will grow and credit allocation will increase leading to political interference. This will increase both cost and risk of the central bank leading to many international implications as well. Though these shortfalls outweigh the benefits they are also to be looked upon.
A general risk factor is that the presentation of a CBDC would encourage limit money related establishment runs and subsequently make banks’ subsidizing position more vulnerable. In any case, the Bank of England found that if the approach of CBDC follows a firm of center standards the risk of a machine-broad run from financial institution deposits to CBDC is tended to.
This decision of BOT which arrived when there was a significant push of countries towards CBDCs and its testing. Countries like China have emphasized its importance and have been running with there own CBDC system recently and are also taking significant steps to improve there performance. A recent Canadian job offer also revealed Canada’s will to develop a CBDC system of its own. The same was seen in France where they have already tested a digital Euro last month, successfully.
Hence, the CBDC pilot project of BOT based on Project Inthanon is ready for the test with the leading cement and building materials company of Thailand. The project aims to simply eradicate any shortfalls and improving CBDCs for the best use of enterprises and banks in the country of Thailand.