Thailand's central bank outlines safeguards for a future retail CBDC

Thailand’s central bank has published the results of a new study on how to manage the implications of issuing a retail central bank digital currency (CDBC) for the country’s financial sector.

Thailand's central bank outlines safeguards for a future retail CBDC

The Bank of Thailand, like many other central banks worldwide, has been engaged in CBDC research and development and now plans to begin testing a CBDC scheduled next year. Unlike the BoT, not all these central banks have committed to trialing specifically retail CBDCs.

From the latest study, the bank has disclosed three key conclusions it has drawn for ensuring that retail CBDC issuance does not present risks for financial stability. 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 further challenges may include an adverse effect on monetary policy transmission or on existing financial institutions. 

To prevent this, the study suggests three crucial points: 1.  the CBDC shall be cash-like and non-interest-bearing, 2. intermediaries such as financial institutions shall be the distributors of CBDC to the general public, and 3. conditions or limits for converting CBDC shall be established.

The bank suggests that such measures will help to ensure that a retail CBDC does not compete with bank deposits and to preserve the role of intermediaries in collecting deposits and providing credit as well as managing liquidity in the overall financial system. These measures also provide a safeguard against runs on financial institutions, in the BoT’s view.

The Thai bank predicts that public demand for a retail CBDC will grow over time and could lead to such a currency becoming an alternative form of payment in the future, in lieu of cash and existing forms of e-money.

BoT has disclosed further details of its planned pilot for a retail CBDC in real-world situations. The pilot will be split into two tracks. 

The first, the Foundation Track will begin in Q2 2022 and will involve using the currency to conduct cash-like activities at a limited scale, e.g. as to payment or receipt for goods and services, as well as for conversion.

The second, more ambitious Innovation Track will explore ways in which a retail CBDC can be used for more novel use cases, drawing on input from private sector actors and technology developers. The roadmap for this second track has not yet been finalized.

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