Central bank to test-drive digital currency next year
The Bank of Thailand (BOT) plans to develop and test its Retail Central Bank Digital Currency (Retail CBDC) in a real-life environment in the second quarter of 2022.
The pilot test will initially be conducted on a limited group under the BOT before it is expanded to the public, retail stores,banks and non-banking facilities, said Vachira Arromdee, assistant governor of BOT’s Financial Markets Operations Group.
BOT also released a study on the implications of Retail CBDC on the Thai financial sector as well as results of a public survey on the development of the currency. This study was based on "The Way Forward for Retail Central Bank Digital Currency in Thailand" published on April 2 this year.
The results of the study and feedback from the survey are being used to determine guidelines for the pilot test. The key points are summarized as follows:
1. Implications of Retail CBDC on the Thai financial sector
Studies show that for the design and development of Retail CBDC to have the maximum potential, the CBDC must not adversely eaffect monetary policy transmission, financial institutions, or overall financial stability.
In this regard, the following characteristics are key: the CBDC shall be cash-like and non-interest-bearing; intermediaries such as financial institutions shall be the distributors of CBDC to the public; and conditions or limits for converting CBDC shall be established.
These guidelines are to ensure that the CBDC does not compete with deposits or cause runs on financial institutions, and preserves the role of intermediaries in collecting deposits and providing credit as well as managing liquidity in the overall financial system.
The BOT predicts that the public’s demand for Retail CBDC will gradually rise over time and that CBDC could become an alternative payment option in the future.
2. Survey results
Feedback collected via a public survey and focus group discussions show that most respondents agree with the BOT’s approach to Retail CBDC development and view the currency as a beneficial infrastructure open to access and competition, with the potential to foster greater development of a safe financial innovation in the future.
Respondents also agree that the CBDC design guidelines can help mitigate any negative impacts on the Thai financial sector.
Some respondents further advised the BOT to focus on promoting consumers’ knowledge and understanding of the benefits and uses of CBDC, particularly on how it differs from current electronic payment options.
3. Pilot test plans
Based on the study and survey results, the BOT has established guidelines for the pilot test under two tracks, as follows:
1) Foundation Track: To test and evaluate the usage of CBDC in conducting cash-like activities within a limited scale, such as accepting, converting, or paying for goods and services. This phase of testing is expected to begin in the second quarter of 2022.
2) Innovation Track: To test and evaluate how CBDC can be further developed for innovative use cases, by allowing participation from the private sector and technology developers. The BOT is currently in the process of considering the format and criteria for participation.
The BOT will assess all results and associated risks from the pilot test, to ensure that Retail CBDC is beneficial to the public, business sector, and country as a whole, and does not undermine economic and financial stability in the future.
