Adoption of Retail CBDC in Thailand

Presently, the emergence of blockchain technology has led to the development of many alternative digital currencies, including cryptocurrencies where prices are highly volatile, and stablecoins where prices are less volatile due to the fact that they are pegged to major currencies or other assets. Nowadays, there is high consumer demand for digital currency in general due to its efficiency. However, there is currently only the option of privately-issued digital currency, thus forcing users to bear a number of risks, such as the following:

• (1) High price volatility of cryptocurrency.
• (2) Cyberattacks are not uncommon. On the other hand, when making transactions through financial intermediaries regulated by the central bank, this can ensure system stability and security. 
• (3) Credit risk of the currency issuer when compared to fiat money, which is risk-free and, for Thailand, backed by sovereign reserves.

Therefore, with such limitations, the Bank of Thailand (“BOT”) plans to issue the Retail Central Bank Digital Currency (“Retail CBDC”) to provide the public with access to the government's financial infrastructure and technology, as well as use of the most reliable and secure digital currency. It is designed to be beneficial for Thai citizens and appropriate from the Thai context, i.e. the design must not impose adverse effects on monetary policy or overall financial stability. In this regard, its characteristics are as below.

A. Characteristics of Retail CBDC expected to be issued in Thailand

• 1. Users can hold Retail CBDC both online and offline in order to conduct financial transactions with or without internet access. For offline usage, it can be used through a smartcard in order to accommodate people to access to financial services even without a deposit account with a financial institution.
• 2. Does not pose any financial costs to users.
• 3. Allows various participants to build innovative financial services on top of the Retail CBDC (programmability features).
• 4. Due to the fact that financial intermediaries such as financial institutions or other financial service providers are already proficient and familiar with KYC processes, and in order not to effect their current roles as an intermediary for obtaining deposits and providing loans to the public, Retail CBDC will be distributed through such intermediaries. In such regard, the user will have an e-wallet specifically for Retail CBDC with these intermediaries to exchange the Retail CBDC with the central bank. In other words, the BOT will be the issuer of Retail CBDC, not the distributor.
• 5. Does not bear interest and limit the amount of redemption to prevent rapid withdrawal of large sums of money, which may affect the stability of the financial institution system and the public's deposit balance, especially during the financial crisis; including to prevent money laundering transactions and the conduct of illegal and immoral activities.
• 6. Takes advantage of both centralised and decentralised technology, i.e. centralised technology helps to quickly process high volume transactions and decentralised technology helps increase a user’s security by using cryptographic techniques.

B. Uses of Retail CBDC in Thailand

Currently, there are various types of available payment methods, including cash, mobile/internet banking, e-money and cheques. However, the use of Retail CBDC is expected to partially replace only cash and e-money usage; it cannot be substituted for payments/deposits made through mobile/internet banking systems as an alternative to save money (Retail CBDC is not an option for deposits as it does not bear any interest), and mobile/internet banking itself is now easier and faster to use with lower transaction costs. Furthermore, it cannot be substituted for cheques; this is because cheques used through a current account possess legal advantages by being protected under the Offences Related to the Issuance of Cheques Act B.E. 2534 (1991), including the development of digital cheques in the future. Therefore, the expected usage of Retail CBDC compared with current payment methods can be summarised as follows:

Therefore, the usage of Retail CBDC in Thailand is expected to be only as a partial replacement for cash and e-money, coupled with the use on internet/mobile banking and cheques. However, some users would prefer not to use Retail CBDC as a substitute for cash because they want to hide their identity in their financial transactions or they are not yet familiar with the use with new technologies. Moreover, some users would prefer not to use it instead of e-money because they want to access additional services of the e-money service providers, such as marketing benefits. Therefore, Retail CBDC itself is still at risk in terms of public demand because people nowadays can easily access and are already used to the existing and various payment options; however, there are major advantages of Retail CBDC in contributing to the society and the economy, as follows:

• 1. Reducing the monopoly on any particular private financial business. If there are only a few players or participants in the private financial sector, the users are at risk of being charged unnecessary fees, receiving poor quality services or their personal information being misused. Therefore, Retail CBDC, which are not intended to be issued for profits, should help mitigate these problems.
• 2. Taking advantage of the programmability features. Retail CBDC can be enhanced by additional programs in order to create the desired benefits, e.g. for the government, it can be programmed to optimise government economic stimulus policies, such as the government can directly inject the Retail CBDC into people's wallets (Government-to-person (G2P) transfers) during a financial crisis. For the private sector, new innovations can be created on top of the Retail CBDC, e.g. it can be programmed to increase the efficiency of debt enforcement, such as payment of debts can be immediately enforced from such digital money upon default.
• 3. Creating barriers to activities in the grey and black economy. Since cash is used upon such activities, Retail CBDC, which replace cash usage, can help reduce these problems because of its tracking function.
• 4. Retail CBDC can reduce the marginal cost of using cash if it is widely used instead of cash, and the efficiency of economic activities shall be increased.

In light of above, Retail CBDC is another important step in upgrading the country's payment infrastructure to get fully ready for the digital economy and to open new innovations from private financial service providers.

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please do not hesitate to contact any of the authors.

Nuttaros Tangprasitti
Partner

Krid Pongprapaphan
Associate

Authors