In Conversation with the Bank of Thailand’s Digital Currency Policy and Development Unit

Within the central banking community, the Bank of Thailand is an acknowledged leader in the central bank digital currency (CBDC) space. Starting in 2018 with the launch of Project Inthanon and continuing to the present day with the multi-jurisdiction Project mBridge, the Bank has long been at the forefront of wholesale CBDC activity. In March of this year, the Bank published the results of its retail CBDC pilot, which ran from late 2022 to October 2023. Central Bank Payments News sat down recently with the Bank of Thailand’s Digital Currency Policy and Development Unit — Kasidit Tansanguan, Nuntapun Bhensook, and Thanaporn Rattanakul — to learn more about the retail pilot and what’s next for Thailand’s CBDC journey.

Central Bank Payments News (CBPN): The Bank’s dual-track pilot consisted of a Foundation Track and an Innovation Track, each with its own unique focus and objectives. Can you share how the parameters for the Foundation Track were decided upon and how this framework facilitated testing of the CBDC’s core functionalities, open access feasibility, and its potential to serve as an alternative payment infrastructure?

Bank of Thailand (BOT): To fully understand the implication of retail CBDCs, from both business and technical perspectives, comprehensive end-to-end testing of the Retail CBDC lifecycle with all relevant stakeholders (users, merchants, banks and non-bank) is imperative. This testing helped us explore solutions to these critical problem statements, ensuring that the implementation of CBDCs enhances the efficiency and integrity of financial services.

In the context of retail environments, functionality stands as a foundational necessity. Without it, discussions of innovation are moot. In such settings, it is crucial to achieve the following:

• Business: The pilot shall cover the end-to-end cycle of CBDC (i.e., issuance, top-up, transfer and payment, withdrawal, redemption) which involves all relevant stakeholders in its life cycle to test out several aspects of Retail CBDC, including operation, legal and accounting and AML/CFT compliance. Plus, the live testing via real-value transactions shall be easy to be tested from the users' standpoint (e.g., easily transact by scanning QR code or inputting wallet ID, like other payment manners in Thailand). Moreover, the existing challenge of non-banks lacking direct access must be addressed. CBDC might offer a solution by potentially enabling non-banks to have such access.

• Technology: The pilot shall efficiently maintain a performance level that can handle retail payment transactions, without compromising security standards, while preserving privacy integrity of users in accordance with relevant laws. Additionally, the CBDC infrastructure shall be interoperable with the existing payment system in some way to enable users and merchants to top-up and withdraw CBDC by linking with their bank accounts.

Despite the challenges uncovered during the pilot testing, the pilot results revealed that the core functionalities, open access feasibility and its potential to serve as an alternative payment infrastructure of Retail CBDC have been proven. The user experience from using Retail CBDC is equivalent to existing payment manners, and Retail CBDC efficiently maintained the capability to handle retail payment transactions by complying with technical, privacy and security requirements.

CBPN: The Innovation track, meanwhile, was focused on programmability and the development of new use cases for CBDC, highlighted by a 2022 Hackathon. Can you discuss the range of submissions received during the Hackathon?

BOT: We received over 100 applications from private sectors eager to share their innovative use case ideas.

In general, these applications focus on the current pain points in Thailand’s financial ecosystem — which envisaged by the applicants that the programmable payment enabled by CBDC might come in to solve those difficulties. These applications spanned six key themes: Financial Literacy, SMEs and Micro Payments, Investment, Green Finance, Interoperability and Digital Assets, Insurance, and Tourist and Cross-border Payments.

Our panel of judges, comprising experts from the private sectors and BOT management, rigorously screened the submissions. We are pleased to award the first prize to the "Grow Up Wallet" use case, which falls under the Financial Literacy theme. This use case was selected for its demonstrated programmability feasibility and its potential as a practical tool for the public to enhance fundamental financial discipline among children.

CBPN: Although not the focus of BOT’s retail CBDC pilot, concerns about the impact of CBDC issuance on monetary policy and financial stability are at the heart of all central banks’ explorations into CBDC. Did BOT gain any insights into these issues from the results of the pilot? How has the central bank’s thinking on these risks and challenges evolved since the 2021 publication of The Way Forward for Central Bank Digital Currency in Thailand?

BOT: The monetary policy and financial stability are of paramount importance, and the pilot does not raise any impact on those considerations since we adopt ...

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