Bank of Thailand to Test Retail Central Bank Digital Currency Mid of 2022

Right after the Subprime Crisis in 2008, one unidentified individual Satoshi Nakamoto in 2009 became successful in creating the world’s first “digital currency” commonly referred to as cryptocurrency- Bitcoin. He published a study in 2008 “Bitcoin: A Peer-to-Peer Electronic Cash System” where he highlighted one of the key objectives behind the cryptocurrency is to decentralize money as we know it – meaning no intermediaries (i.e., central banks; financial intermediaries) in between thus reducing transaction cost. The objective was also to form a unified global currency where currencies are not subject to currency devaluation.

Following the creation of Bitcoin many major currencies emerged and the crypto space started to get its due credibility in early 2021 when institutional investors flocked into the market. As a matter of fact, 87% of Bitcoin investments came from institutional investors according to world’s largest currency asset manager Grayscale. Major global corporations as well started accumulating the coin in its balance sheet which acts as a hedge against currency devaluation. The global crypto market stood at USD 2.03 trillion as of Tuesday morning according to Coinmarketcap.

Although cryptocurrencies are known to be highly speculative and volatile – Stablecoins such as Tether (USDT) and USD Coin among others emerged, which is pegged to sovereign currencies such as USD. These assets are relatively stable and highly correlates with the movement of the underlying assets. Coinmarketcap reported as of August 10, stablcoins combined reached a market cap of USD 118 billion.

According to Harvard Business Review, some economists believe that stablecoins are a major threat to conventional currency since these currencies come with lower-cost, realtime, and more competitive payment gateway which incentivizes consumers and businesses to adopt these currencies faster. However, these coins recently came under regulatory scrutiny due to their poor disclosure practices and whether the price of these coins are backed by adequate underlying assets. Chair of the Federal Reserve- Jerome Powell, issued an urgent call for regulation of stablecoins since these coins throw a threat to financial stability.

In a race against the decentralized currencies and potential threat to sovereign currencies, central banks globally are developing their own digital currencies named after the Central Bank Digital Currency (CBDC).

According to estimates of the Bank of Thailand (BoT) trading of crypto exchanges in Thailand increased by 17x from just USD 0.14 billion in 2008 to USD 2.5 as of 2020. It is important to note that Thailand is also one of the first countries to regulate trading and exchange of digital currencies.

The Bank of Thailand (BoT) has recently announced its plan to test Retail Central bank Digital Currency (Retail CBDC) in the second quarter of 2022.

Earlier the regulator published a report on its survey and study on the Thai digital currency.  “The Way Forward for Retail Central Bank Digital Currency in Thailand” which entails the use case and feasibility study of the Thai CBDC. Under BoT’s CBDC framework the type of digital currency includes Wholesale CBDCs and Retail CBDCs.

In the initial phase Retail CBDCs use case will be on a limited scale such as accepting, converting or paying for goods and services which will facilitate evaluation of further development of the digital currency.

However, the regulator will ensure CBDCs do not undermine and adversely affect the country’s monetary policy transmission and role of the financial institutions. The digital currency will be cash like and non-interest bearing which would ensure CBDCs do not compete with deposits or cause bank run. This would keep the role of financial intermediaries intact thus maintaining financial stability.

Vachira Arromdee, assistant governor of the central bank hinted that depending on the popularity of the digital currency it might offer financial benefits in the future. However, the convenience, speed, security and other innovative features would make BoT’s digital currency attractive to the public at the moment.