The Bank of Thailand has released the findings of a new study into the implications of issuing a retail central bank digital currency (CDBC) for Thailand’s financial sector.
In contrast to wholesale CBDC, which is only available to financial institutions and intermediaries, retail CBDC is widely available to the general public. The Bank of Thailand, like many other central banks around the world, has been conducting CBDC research and development and plans to begin testing a CBDC next year. Unlike the BoT, not all of these central banks have committed to testing retail CBDCs.
The BoT has revealed three key conclusions from its most recent study for ensuring that retail CBDC issuance does not pose financial stability risks. Having previously identified a “flight to quality” — i.e. consumers preferring CBDCs to existing fiat currency in certain situations — as a major risk factor, the BoT’s study notes that additional challenges may include a negative impact on monetary policy transmission or existing financial institutions. The study suggests that the following three points are critical in order to avoid this:
“(1) CBDC shall be cash-like and non-interest-bearing, (2) CBDC shall be distributed to the general public through intermediaries such as financial institutions, and (3) conditions or limits for converting CBDC shall be established.”
Such measures, according to the BoT, will help to ensure that a retail CBDC does not compete with bank deposits and will help to “preserve the role of intermediaries in collecting deposits, providing credit, and managing liquidity in the overall financial system.” According to the BoT, these measures also provide a safeguard against financial institution runs.
Notably, the BoT anticipates that public demand for a retail CBDC will grow over time, potentially leading to such a currency becoming a future form of payment in place of cash and existing forms of e-money.
Along with these takeaways, the BoT has revealed more information about its planned pilot for a retail CBDC in real-world scenarios. The pilot will be divided into two parts. The first, the “Foundation Track,” will begin in Q2 2022 and will involve using the currency on a limited scale to conduct cash-like activities, such as payment or receipt for goods and services, as well as conversion.
The second, more ambitious “Innovation Track” will investigate how a retail CBDC can be used for more novel use cases, with input from private sector actors and technology developers. The roadmap for this second track has not yet been finalized, and the BoT has stated that it is still developing the format of the pilot and determining which actors will be eligible to participate in its execution.
As previously reported, the BoT has collaborated with several major Asian banks on a project to develop a cross-border CBDC, or Multiple Central Bank Digital Currency Bridge (m-CBDC), using distributed ledger technology. Other participating banks include the Hong Kong Monetary Authority, the Central Bank of the United Arab Emirates, and the People’s Bank of China’s Digital Currency Institute.