Thai Central Bank Digital Currency (CBDC)

With the maturity of blockchain technology and the rapid development of digital currencies, the market size of decentralized encrypted digital currencies (e.g. Bitcoin & Litecoin) has become larger and larger.  According to the data from CoinMarketcap.com, there are 319 digital currency exchanges with 5290 issued digital currencies.  To prevent the loopholes of decentralized cryptocurrency and enjoy the economic benefits brought by digital currencies, countries including Thailand actively promote the introduction of legal digital currency.

What is Cryptocurrency?

Cryptocurrency has a similar nature and function of money.  It can be regarded as a digital currency or as an international currency that can be used worldwide without any limitation.  It has no physical presence (paper money) and is not issued by any central financial institution, but also able to be used for exchange, settlement, and value storage. With the functions of money, cryptocurrency enjoys extra advantages such as convenience, faster speed, and lower service charges.  However, there are still some loopholes worth noting before any usage or investment of cryptocurrency.

Loopholes of Decentralized Cryptocurrency

1.     High Network Security Risk

The operations of digital currency need to be performed based on the internet.  The inherent security problems of the internet such as hacker attacks and virus intrusion will also be reflected in the encrypted digital currency market.  The largest Bitcoin trading platform of Japan suffered from a loss of about $365 million worth of Bitcoin in 2014 due to hacker attacks.  

2.     Illegal Activities Due to The Anonymity

The issuance and transactions of digital currency do not need to go through the financial institutions.  Without the verification of information on transaction users, criminals are able to conduct money laundering and other illegal acts with the supervision loopholes.  

3.     Sharp Fluctuation of Price

There is no clear issuing and operating body for the existing decentralized encrypted digital currencies.  Without the national credit guarantee, the currency value will fluctuate greatly and attract speculative consumers.  Due to the lack of regulation among counties, the rights of investors on cross-border investment cannot be guaranteed.

To prevent the loopholes of decentralized encrypted digital currencies and enjoy the economic benefits brought by digital currencies, countries including Thailand actively promote the introduction of Central Bank Digital Currency (CDBC).  Bank of Thailand announced the cooperation with The Siam Cement Public Company Ltd of launching a CBDC project in July 2020.  This project is based on an enterprise-level payment system which will also act as a test before the official launch of the Thailand CBDC payment system.  The support for fintech innovation can effectively improve domestic commercial competitiveness at the stage of digital age.  The Bank of Thailand will start with large enterprises and further expand the popularity of CBDC in Thailand.

The basis of the CBDC project will be built on the Project Inthanon which is the cooperation among Bank of Thailand and 8 major financial institutions.  In November 2019, the Hong Kong Monetary Authority announced the cooperation with Bank of Thailand on the Project Inthanon-LionRock.  To strengthen the collaboration between Thailand and Hong Kong in promoting financial innovation, the project mainly explores the application of CBDC in cross-border payment.  In January 2020, the prototype of cross-border payment and funds transfer were successfully finished.

With the support of the CBDC system, it reduces the multiple layers of settlement procedures, transaction costs, and time.  The transaction process will be more transparent and can be completed in real-time with the e-contracts.