The Bank of Thailand has released the results of a new study on how to deal with the impact of issuing central bank digital currency (CDBC) on the country’s financial sector.

Unlike a wholesale CBDC, which is limited to use by financial institutions and intermediaries, a retail CBDC is widely available to the general public. The Bank of Thailand, like many other central banks around the world, has been involved in CBDC research and development and is now planning to begin testing a CBDC next year. In contrast to the BoT, not all of these central banks have committed to specifically testing CBDCs for private customers.

From its latest study, the BoT announced three key conclusions that it has drawn to ensure that issuing CBDC to retail clients does not pose a risk to financial stability. Having previously identified a “flight to quality” – ie consumers who, in certain situations, prefer CBDCs to the existing fiat currency – as the main risk factor, the BoT study finds that further challenges have an adverse effect on monetary policy transmission or on existing ones Financial institutions may include. To prevent this from happening, the study suggests that the following three points are critical:

“(1) the CBDC is cashless and non-interest-bearing, (2) intermediaries such as financial institutions are the distributors of CBDC to the general public, and (3) conditions or limits are set for converting CBDC.”

Such measures, the BoT said, will help ensure that a retail CBDC does not compete with bank deposits and “preserve the role of intermediaries in deposit collection, lending and liquidity management throughout the financial system.” From the BoT’s point of view, these measures also offer protection against attacks on financial institutions.

Related: Thailand’s central bank warns of “illegal” THT stablecoin

In particular, the BoT predicts that public demand for a retail CBDC will increase over time and could result in such a currency becoming an alternative form of payment in the future to cash and existing forms of e-money.

In addition to these findings, the BoT has announced further details on its planned pilot project for a CBDC for retail in real situations. The pilot is split into two tracks. The first, the “Foundation Track”, starts in the 2nd quarter of 2022 and includes the use of the currency for cash-like activities to a limited extent, e.g. B. as payment or receipt for goods and services as well as for conversions.

The second, more ambitious “Innovation Track” will explore ways in which a retail CBDC can be used for new use cases, drawing on input from private sector actors and technology developers. The timetable for this second track has not yet been completed and the BoT states that it is still developing the pilot format and evaluating which actors are authorized to take part in its implementation.

As previously reported, the BoT has teamed up with several major banks across Asia to work on a project for a prototype cross-border CBDC, or Multiple Central Bank Digital Currency Bridge (m-CBDC), that uses distributed ledger technology . Other participating banks are the Hong Kong Monetary Authority, the Central Bank of the United Arab Emirates and the Digital Currency Institute of the People’s Bank of China.


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