In August 2021, the Bank of Thailand (BOT) released a study disclosing the
implications of a potential digital baht on the Thai financial sector, in addition to discussing plans for CBDC tests in the future. This study emphasized a potential digital Thai baht being cash-like and non-interest bearing, with a two-tiered distribution model similar to that of the digital yuan as announced in March 2021.
Additionally, the BOT study released feedback from a public survey and group discussions with the Thai community, highlighting general support for the BOT’s approach to a digital baht. This feedback provided the basis of support for future CBDC testing plans through a dual-track approach, with a foundation track testing the usage of a digital baht for common cash-like activities on a limited scale, in parallel with an innovation track to examine further innovative use cases for a CBDC. The foundation track is currently being proposed for pilot testing in the second quarter of 2022
With such advancements in mind, Thailand represents one of the most likely frontrunners for future CBDC implementation in Asia behind projects like the digital yuan and Singapore’s Project Ubin. While tests remain to be completed, a variety of other separate factors support the possibility of the Bank of Thailand being among the first Asia-based banks to unveil a retail CBDC for use by its general population and beyond.
History of the innovation within the Bank of Thailand
The Bank of Thailand has been at the forefront of several initiatives within the fintech space in recent history, with significant momentum behind such growth being the January 2017 announcement of the Digital Development Act, which established a Digital Economy Committee, Digital Economy Fund, and a Promotion of Digital Economy and Society Bureau in Thailand to drive homegrown innovation in both public and private enterprises.
In August 2018, the Bank of Thailand began participation in the Hong Kong Monetary Authority-originated (HKMA) Project Inthanon in its Phase I, with the BOT helping to test a payments prototype via R3’s blockchain platform Corda and Distributed Ledger Technology (DLT). Project Inthanon tested the implementation of smart contracts to perform real-time and atomic Payment-versus-Payment (PvP) settlements for foreign exchange. In this respect, PvP settlements helped to ensure the final transfer of a payment in one currency only after the final transfer of another payment in another currency took place.
After the conclusion of Project Inthanon’s Phase II, the BOT and HKMA released their findings in January 2020, highlighting the validation of improved settlement efficiency without the need for intermediary banks to help route transactions, a traditionally time-consuming burden on cross-border transactions. This effort helped to highlight the potential that the digital baht has within and outside of Thailand, particularly as a retail CBDC.
In June 2019, the BOT also announced the use of biometric solutions for digital identify verification as part of its Know Your Customer (KYC) initiatives, demonstrating its commitment to leverage emerging technologies with the financial sector Additionally, the BOT further heavily invested into exploring cross-border payments with other partners in the Southeast Asia region. Some recent announcements include the unveiling of cross-border QR code payments partnerships with Vietnam in March 2021 and Malaysia in June 2021, as well as a limited real-time retail payments solution with Singapore in April 2021
The BOT is clearly a familiar face in the fintech scene, with its testing and usage of Project Inthanon, biometrics-enabled KYC, as well as cross-border QR and real-time payments solutions helping to bring Thailand further into the digital age. In this respect, Thailand has immense opportunity via CBDCs, which can further help propel Thailand to be one of the first implementers of a retail CBDC in Asia.
Factors supporting CBDC growth in Thailand
In addition to the BOT’s various initiatives, other factors support CBDC growth in Thailand. Some of these initiatives that help provide momentum for Thai-based fintech innovation include government initiatives in conjunction with a high mobile Internet penetration rate in Thailand.
In April 2017, the Thai government passed its latest constitution, which included the first-ever Thailand National Strategy (2018-2037). This plan aimed to help bring further innovation to Thai society, running alongside previous initiatives like Thailand 4.0 and the Digital Development Act. Government support is crucial to driving technological growth and clear priorities by both the BOT and the ruling Thai government are indicators of success for a potential digital baht.
Additionally, the smartphone penetration rate in Thailand currently exceeds 80%,with mobile phone user internet penetration rates being a little less at around 76%. The growth of popular apps like Grab and Line in Thailand are clear indicators of mobile Internet penetration success, with these apps expanding beyond their original ride-sharing and messaging platforms to digital payments, e-commerce, food delivery, and much more. Such a high mobile penetration rate bodes well for Thailand’s developing economy, and the willingness to embrace apps quickly showcases the desire for both robust digital payments mechanisms and a potential digital baht.
Potential hazards to a digital baht
Despite multiple positive benefits pointing to the success of a potential Thai CBDC, Thailand does face several challenges along its road to fintech success, chief among them a tourist-based economy, a declining birth rate, and government instability.
In recent years, Thailand’s largest contributors to GDP have included the services, industry, and agriculture sectors, with the services sector comprising the largest portion of GDP, often hovering anywhere from 50% to nearly 60% of total GDP. The majority of these services are heavily centered around travel and tourism. With this in mind, Thailand must begin to focus on developing human capital and skills to match pace with other developing countries, an opportunity that a retail CBDC could certainly assist with.
Additionally, Thailand’s current total fertility rate (TFR) is 1.52. For context, Japan’s TFR is currently 1.42. This places Thailand on track to maintain only a mere two-thirds of its population by 2100, going from its current 70-million population to 46 million. This creates significant challenges for future generations due to slower economic growth and strained government budgets, both of which can hamper future innovation, and thus, CBDC implementation in the current day.
Additionally, concerns over the current Thai government structure have best exemplified themselves through the ongoing Thai protests, which began in February 2020. These protests have showcased the younger population’s desire for institutional governance change through monarchy reform, to the point of rumors of a potential military coup backing protestors first emerging in September 2020. The instability of the current Thai government is a worrying point for Thailand’s potential to become one of the first Asia-based CBDCs.
All in all, the Bank of Thailand has worked hard to establish itself as a relative trailblazer in the field of fintech. Despite several potential detracting factors, the BOT has been able to demonstrate successful iterations of blockchain and DLT technology, biometrics-enabled KYC initiatives, and even cross-border payments enabled by QR codes in the last five years. Additionally, governmental support and a high mobile penetration rate further drive the potential of a Thai-based CBDC. While certainly not as developed as the digital yuan, the digital baht represents an excellent example of a developing nation attempting to harness technology to propel it into the future, with the digital baht being a frontrunner in becoming among the first retail Asia-based CBDCs.