The Bank of Thailand (BOT) plans to launch a central bank digital currency (CBDC) pilot by the end of the year to assess the risks and benefits of digital currency launch. The bank believes that cooperation with the private sector will enable the central bank to expand the scope of previous CBDC studies.
"The Bank of Thailand was among the first central banks to recognize CBDC as a new financial infrastructure, and this technology has the potential to provide more convenient and easier access to a variety of financial services at lower costs."
The pilot implementation of the bank will be divided into two parts. The first is a basic way designed to evaluate payments made by around 10,000 users for goods and services involving three companies. The second part is the innovative way to facilitate the development of new financial services.
Despite all these efforts, the bank has no plans to launch a CBDC for now. In the first place, the central bank wants to comprehensively evaluate the risks and benefits of CBDCs. Thailand, in its statement last year, stated that CBDC is a system that can be fully implemented in 3 to 5 years.
What is a Central Bank Digital Currency (CBDC)?
A central bank digital currency (CBDC) is a digital version of government-backed fiat money. This type of digital currency is issued by a central bank and is tied to the country's national currency.
CBDCs are most similar to stablecoins, which are cryptocurrencies that are pegged to fiat money and try to maintain the same value. The main difference is that world governments issue CBDCs.
A huge number of countries around the world are researching or developing CBDCs and are at various stages in the process. Some have inactive or canceled projects, while others have already launched digital currencies. It's important to understand them if you're investing in cryptocurrency, as CBDCs can impact the crypto market.
Each CBDC is a digital representation of a country's current fiat currency and works the same way. As many countries are working on their own CBDCs, there will likely be differences in the way they work, but they follow the same basic model. The country's central bank issues its CBDC, which has the backing of the federal government. This CBDC can then be used as a legal tender for transactions such as paying employees or purchasing goods and services.
This may sound familiar to what we already have. After all, you can transfer money from your bank account to a friend's account at another bank, and it all happens digitally. However, with a CBDC this type of transaction does not need to go through multiple banks and take several business days. Everything can happen almost instantly in a single digital ledger. Consumers also do not need a business bank account to use a CBDC. For those without a bank account, CBDCs will provide a way to transfer money digitally.