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Hong Kong’s Central Bank and Bank of Thailand Announce Results of Blockchain-Based CBDC Study

The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand published the results in a research report of the Project Inthanon-LionRock, by the two central banks on the application of distributed ledger technology and central bank digital currencies (CBDCs) on cross-border payments. In May 2019, the two authorities signed a Memorandum of Understanding (MoU) on fintech collaboration, as Thailand is one of Hong Kong’s top 10 principal trading partners.

Project LionRock, native to Hong Kong’s central bank, started in 2017, along with three note-issuing banks, R3 consortium and Hong Kong Interbank Clearing Limited, and proof-of-concept (PoC) was developed. Currently, the banks that are involved in the project are the Hong Kong Shanghai Banking Corporation Limited, and ZA Bank, a virtual bank that is licensed by the HKMA, and formerly known as ZhongAn.

Project Inthanon started in 2018 and has arrived at its third phase. The two projects are exploring how distributed ledger technology and blockchain could be used for cross-border funds transfers. The two authorities have agreed to continue to further research in relevant areas, including the involvement of other banks and relevant parties in facilitating cross-border fund transfer trials. In the third quarter of 2019, eight banks in Thailand joined the central bank to develop the cross-border funds PoC.

Not made for retail

One of the key findings from the study concluded that due to the highly efficient and trusted retail and wholesale payment infrastructures in Hong Kong, there is not an urgent need for a CBDC at both the retail and wholesale levels. Although there is little value in developing a CBDC for retail payments, the study found that there has been an increase of interest in cross-border payments in funding solutions. The two authorities hope the study will help both jurisdictions in terms of trade.

Comparing to China’s CBDC

As China has been reportedly ready to launch its own CBDC, used mainly as digital cash issued by the central bank, the HKMA believes that there would not be an area for partnership, as China’s CBDC is primarily focused on the retail market. Although China also has other methods of payment, including Alipay and WeChat Pay, Pou explained that Hong Kong still does not have a need for a retail CBDC.

Solving the current pain points of the existing cross-border funds model

The study also aimed to solve the current pain points of the existing cross-border funds transfer model, such as the inefficiencies in settlement time, high fees involved in currency exchange, and the involvement of extensive intermediaries. The development of CBDC in both jurisdictions will allow for a seamless experience with cross-border remittances, with the access of competitive foreign exchange pricing, liquidity management, and saving mechanisms, and improving the transparency of transactions to fulfill regulatory requirements.

Mathee Supapongse, the Deputy Governor of the Bank of Thailand said, “Building on pain points and business cases, the novel cross-border model is designed and developed as a PoC.”

By utilizing blockchain, liquidity management and saving mechanisms could be automated, smoothening the payment process, including transaction queuing and conversion. Cross-border funds transfers could be completed in real-time, with fewer intermediaries involved and settlement layers. So far, only a Thai Baht to Hong Kong Dollar corridor has been tested with the 10 participating banks from Thailand and Hong Kong, the model is designed to be scalable and could be used with other jurisdictions as well.

Edmond Lau, the Senior Executive Director of the HKMA added, “Our joint research project with the Bank of Thailand marks an important first step to solve the pain points of low efficiency and high costs in traditional cross-border payments. With the use of blockchain technology, the innovative and unique solution not only addresses different technical issues in practical applications, but also offers good references to the central banking community on the use of CBDC.”

Practical solution and assessing hurdles

“What makes our study different is that we actually offer practical solutions to address the most well-known pain points in cross-border remittances […], not just theoretical or technological; so we hope we can offer some useful references to the central banking community,” said Colin Pou, the Executive Director of Financial Infrastructure of the HKMA.

According to Pou, the corridor network is meant to be a “trusted platform” for remittances, a platform that users can count on since it was created by central banks.

The next areas of focus of the study was said to be more extensive research on the technical, legal, and governance requirements of the CBDC. However, the HKMA representatives did not give a specific time for the potential launch, as other hurdles need to be assessed before setting a time for the launch.

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Bank of Thailand Projected to Go Forward with Central Bank Digital Currency Prototype

The Bank of Thailand (BOT) announced its plans for a Central Bank Digital Currency (CBDC) prototype to be in effect by 2021. The BOT asserts that with a digital payment system in place, this would make transactions more efficient and secure. The BOT plans to begin the production of their prototype for a CBDC next month.

After having successfully launched Project Inthanon-LionRock with the Hong Kong Monetary Authority (HKMA) in January 2020, the BOT has expanded their financial ambitions by developing a CBDC for businesses. This would enable businesses to conduct fund transfers faster and with higher efficiency, whether it be for domestic or cross-border trade purposes.

In light of the digital age, CBDC is a financial innovation that may revolutionize how corporate firms conduct business. As Senior Executive Director of the HKMA Edmond Lau stated, “With the use of blockchain technology, the innovative and unique solution not only addresses different technical issues in practical applications but also offers good references to the central banking community on the use of Central Bank Digital Currency.”

Project Inthanon-LionRock was a proof-of-concept (PoC) prototype finalized in January 2020 that studied the effectiveness of CBDC for cross border payments. The project was divided into three phases. The first part outlined the development of a proof of concept using CBDC and the benefits of employing a distributed ledger technology. The second part pertained to the efficiency of blockchain vs. a more traditional centralized system; the third phase explored the plausibility and interoperability of cross border funds transfer, and whether CBDC could potentially revolutionize foreign exchange.

In a digital age that is quickly evolving, multiple countries are racing to produce their own CBDC. China has expressed its intent on normalizing blockchain technology usage with the Password Law they put forward at the beginning of the year.

Many also hope to see an end to money laundering and fraud with the implementations that come with blockchain technology. As Chairman of the FinTech Association of Hong Kong Henry Arslanian observed, “one of the potential ideological goals of moving to CBDCs is that we may have a fighting chance to try to put an end to not only corruption, but also potentially money laundering, and that can be really positive for society as a whole.”

Bank of Thailand Completes Digital Bond Issuance With Blockchain

Thailand’s Central Bank, the Bank of Thailand has leveraged the power of blockchain technology to launch a platform for government bond savings issuance.

Per an official press release, the Bank of Thailand noted that the blockchain-based platform will help to improve investor’s buying experience, improve operational efficiency, and reduce the overall cost of operations.

The platform dubbed DLT Scripless Bond Project is a collaborative effort involving seven other institutions including the Public Debt Management Office, Thailand Securities Depository Co., Ltd, Thai Bond Market Association, as well as selling-agent banks, including Bangkok Bank, Krungthai Bank, Kasikorn Bank, and Siam Commercial Bank. As reported, about Fifty billion baht of government savings bonds were sold out in a week following the launch of the platform.

The Bank of Thailand stated:

“The new infrastructure successfully went live by supporting Government Savings Bonds: “1 Baht Bond” and “Moving Forward”. The total issuance of 50 billion THB has completely allocated to the investors sooner than expected.In the next phase, the infrastructure will expand to support all different government bonds.”

Thailand’s Blockchain Poise Paying Off

Thailand is one of the countries in Asia with an aggressive drive to explore the potentials of blockchain technology. The country, advancing with the development of its Central Bank Digital Currency began testing the CBDC with large businesses back in July, ahead of its official debut.

Thailand’s experimentation with blockchain initiatives also took a deep dive when the country unveiled its plans to overhaul the traveling industry with the issuance of blockchain-based virtual visas. As Blockchain.news reported, the plans by Thailand to utilize blockchain technology to overhaul the travel industry was projected to enhance the system to speed up the application process and protect the confidential information of the tourists.

With the official launch of a blockchain-based Digital Bond Issuance platform, Thailand has complimented its strides in seeing the improved advances of blockchain technology in the country.

Bank of Thailand Warns Against the Use of Digital Currencies Payments

The Bank of Thailand (BOT) warned against using digital currencies in serving as payments for goods and services in the country.

Per a press release shared by the apex financial institution Thursday, Ms Siritida Panomwon Na Ayudhya, Assistant Governor of Payment Systems Policy and Financial Technology Group, said the bank has been monitoring the growing embrace of nascent assets like Bitcoin (BTC), Ethereum (ETH) for e-commerce, a development the bank frowns at.

Siritida reiterated that virtual currencies are not legal tender in Thailand. Their use can predispose the receiver of the cryptocurrencies to certain risks, ranging from price volatility to cyber theft and money laundering, amongst others.

“Some digital assets are investment instruments, of which investors must understand the risks of holding. The BOT does not support the usage of digital assets as a means of payment for goods and services, a view that is consistent with many international organizations and regulators such as the International Monetary Fund (IMF),” the BOT press release reads.

The BOT also highlighted that it is set to take measures in conjunction with the Securities and Exchange Commission (SEC) to ensure that cryptocurrencies do not pose risks to consumers, businesses, and the entire financial ecosystem. One of the ways the bank hopes to achieve this is by intensifying its Central Bank Digital Currency (CBDC) pursuit and making allowance for the use of innovative and regulated stablecoins.

Besides Thailand, China is also known to maintain a rigorous stance on digital currencies. While other nations maintain a verbal warning against crypto, Chinese authorities are currently enforcing an encompassing ban on Bitcoin and altcoin mining, as well as other trading activities.

The struggle of digital currencies amongst regulators is still commonplace nowadays. However, with the embrace of institutional and retail investors, many industry veterans believe the time of crypto has come.

Thailand's Market Watchdogs Suggest Crypto Regulation to Avoid Threatening Financial Stability

With the year newly shaping up, more regulators are beginning to explore avenues to regulate the digital currency ecosystem. Accordingly, Thailand’s top regulators have issued a statement to regulate cryptocurrencies as a means of payment.

Stumping Competition with National Fiat

The trio of the Bank of Thailand (BOT), the Securities and Exchange Commission (SEC), and the Ministry of Finance (MOF) issued a joint statement noting that certain digital assets are fast growing as a means of payment in the country.

Based on this designation, the regulators said they have chosen to regulate the assets such that they will not pose threats to the financial and economic stability being enjoyed by the nation.

Sethaput Suthiwartnarueput, Governor of the BOT said:

“The BOT takes into consideration both the risks and benefits of digital assets, including the underpinning technologies. At present, the widespread adoption of digital assets as a means of payment for goods and services poses risk to the country’s economic and financial system. Therefore, clear supervision of such activity is needed.”

The authorities said while there will be an issued framework guiding assets deemed risky, there will also be a broad provision for those that pose no threat to the country’s financial ecosystem. The plans to issue the regulations will come after adequate consultation has been made with relevant stakeholders and members of the public, all of which will be factored in by the regulators.

“However, technologies and digital assets that do not pose such risks should be supported with appropriate regulatory frameworks to drive innovation and further benefit for the public,” Suthiwartnarueput added.

Patting Blockchain Innovations on the Back

Thailand is one of the nations whose positivity toward digital currencies is well documented. Despite the plans to crack down on cryptocurrencies, the country remains amongst the pioneers of blockchain-backed electronic letters of guarantee and virtual Visas amongst others. With the flexibility of the regulators, whatever path that will be trailed by the company will not be as damning as those chosen by China and other nations that banned cryptocurrencies outrightly from their shores.

Bank of Thailand to Start Retail Test for its Retail CBDC

The Central Bank of Thailand also known as the Bank of Thailand (BOT) plans to begin the trial of its Central Bank Digital Currency (CBDC) in a retail setting.

According to the Deputy Governor of the bank, Ms. Vachira Arromdee, Retail CBDC has the potential to be the foundation of future financial systems.

Based on this assumption, BOT considers it necessary to expand the scope of the Retail CBDC development beyond its present state to a pilot phase. During this pilot phase, there will be real-life applications of the Retail CBDC in real-time. The phase will be covered in collaboration with the private sector on a limited scale.

In the first place, many central banks are laying much emphasis on the development of Retail CBDC. Specifically, BOT is among the few who recognize the significance of CBDC as a recent financial tool. The Thailand central bank believes that CBDC can provide more opportunities for individuals and businesses including the general public.

The unending list of opportunities encompasses providing more enormous and convenient access to a series of financial services, invariably at a lower cost.

Formerly, BOT took part in Wholesale CBDC projects as well as Proof-of-Concept Retail CBDC testing with corporates. Times are changing to accommodate more comprehensive Retail CBDC development. In light of this, the financial giant is gradually moving with the trend.

The Retail CBDC Pilot Study Tracks

With the intention of a pilot phase, there will be two tracks to its achievement.

The first, is the Foundation track where an assessment will be carried out to ascertain the safety and efficiency of the system. Its technological design will also be examined in this track. Particularly, trading activities like paying for goods and services with CBDC will be conducted.

Next, the Innovation track will target the programmability. This will facilitate the development of innovative use cases for CBDC.

With this track, BOT will develop a design of CBDC that will fit perfectly into its future context. A CBDC Hackathon will take place welcoming both the private and public sectors to participate, so long they apply from 5 August to 12 September 2022.

Additionally, the pilot study will only involve a selected few, therefore, the public is advised to be cautious of fraudsters who might claim to be involved in the process.

First Virtual Banks By 2025 From Bank Of Thailand

The announcement that the Bank of Thailand intends to initiate the very first transaction in the country via virtual banking was made by the institution.

According to the findings of a research conducted by Bloomberg, financial institutions would be able to provide their services by the year 2025.

In the Consultation Paper on Virtual Bank Licensing Framework that was distributed by the central bank, it was said that software that would make it possible for virtual banks to serve as providers of financial services will be accessible later on in the year 2023.

This move is intended to encourage greater levels of competition and to promote economic growth in Thailand.

By the year 2024, the Bank of Thailand will have made three different licenses accessible to any businesses that may be interested in obtaining one. Relying on the findings of the research, at least 10 different organizations have shown an interest in having licenses issued to them.

Both traditional commercial banks and online banks will, so long as they operate within the parameters of the licensing system, be subject to the same rules and degrees of supervision.

In addition, those individuals who are qualified to apply and are interested in doing so will be required to meet a number of conditions.

For the first few years of its existence, virtual banks will reportedly have to comply with a number of regulations imposed by the central bank. During this time, there will be a heightened emphasis on surveillance activities in an effort to identify and neutralize any potential risks to the global financial system.

The Securities and Exchange Commission of Thailand recently made a statement in which it announced its goal to enhance the safety of investors by establishing stronger restrictions for cryptocurrencies.

The use of blockchain technology is expected to benefit from a recent technical cooperation agreement that was recently inked between Thailand and Hungary. This comes at a time when there is a fast expanding demand in Thailand for mobile payments, e-commerce, and cryptocurrency transactions.

In the year 2022, the country saw a range of developments relating to cryptocurrencies, such as plans to pilot a central bank digital currency for about 10,000 users.