BOT Regulatory Policy on Stablecoins

Stablecoins are cryptocurrencies where the price is designed to be pegged to a particular cryptocurrency, fiat money or to exchange-traded commodities and thus shall maintain pretty much a constant value. The price of this digital currency does not fluctuate much according to market demand, unlike like Bitcoin - a blank coin, which tends to suffer from high volatility in its valuations. This volatility makes Bitcoin and other popular cryptocurrencies unsuitable for everyday use by the public, who tend to save them instead of spending them. Therefore, stablecoins provide an alternative solution by making the coin price more stable. 

Stablecoins are classified as three types as follows:

1. Fiat-backed Stablecoin: crypto tokens associated with 1:1 ratio of the value of a specific fiat currency. Samples of this stablecoin are Tether (USDT); USD Coin (USDC); and Indonesia Rupiah Token (IDRT).

2. Asset-backed Stablecoin: crypto tokens associated with other underlying assets, such as commodity-backed which are backed by other kinds of interchangeable assets, e.g. Digix Gold or DGX, which is backed by gold; or crypto-backed, which pegs its value to other cryptocurrencies such as DAI and EOSDT.

3. Algorithmic Stablecoin: crypto tokens which employ algorithms to control market value by using the smart contracts mechanism to compare their value to different currencies in order to keep the value constant, such as APML (Ampleforth); or DUSD (DefiDollar).

On the Korean blockchain platform, Terra, there is a type of stablecoin called THT which is valued in Thai Baht. The coin is classified as an Algorithmic stablecoin due to its mechanism to enable 1 unit of THT to be close to Baht 1 through the Exchange between THT and Luna, which is another cryptocurrency in the Terra blockchain. THT is generated through Luna in the same amount. For example, if the current price of LUNA coin is USD 7 (according to foreign exchanges), it can be converted to THT with a value close to USD 7, which is Baht 230.

Due to the issuance of THT by Terra, the Bank of Thailand (“BOT”) has released BOT News No. 15/2021 regarding stablecoins identified as Thai Baht currency, stating that even though THT is not currently being used as a centre of exchange, widespread use of THT or a similar kind of stablecoin could replace the use of Thai Baht, causing the separation of Thailand’s monetary system, also Thai people’s perception in the system which is the fundamental in economic activities. Consequently, the issuance of THT is considered as an illegal act under Section 9 of the Currency Act B.E. 2501 (1958), which states that no person shall make, issue, use or put into circulation any material or token to be used as money, except strictly under the authority of the Minister, which is liable to imprisonment for a term not exceeding three years or to a fine not exceeding Baht 50,000, or to both.

Subsequently, BOT News No. 16/2564 regarding the regulatory policy for stablecoins as cryptocurrencies has been released, as follows:

1. A Thai Baht-backed stablecoin is a type of cryptocurrency that attempts to reduce volatility by tying its value to Thai Baht, and uses as centre of exchange, which may resemble an e-Money service under the Payment Systems Act B.E. 2560 (2017), regulated by the BOT in various dimensions such as payments, money laundering; and technical security (technical security refers to a series of techniques used for authentication and protection against theft of sensitive data and information, usually in organizations. It authenticates the users' login and data such that only verified user applications can read and access data and applications). Therefore, anybody wishing to provide such services is requested to consult with the Bank of Thailand for its consideration before commencing the operation. However, the aforementioned policy is in line with regulatory guidelines in many countries, such as the UK, Singapore and Japan.

2. For other types of stablecoins - foreign currency-backed (FX-backed stablecoin), asset-backed stablecoin or algorithmic stablecoin - the BOT will provide a public hearing before considering appropriate regulatory guidelines upon the condition that it is not a type of illegal coin.

In summary, in the case of a fiat-backed stablecoin, only a Baht-backed stablecoin may qualify as an e-Money service under the Payment Systems Act B.E. 2560 (2017). As for other types of stablecoins, including a fiat-backed stablecoin – specifically an FX-backed type, asset-backed stablecoin or algorithmic stablecoin, there is no specific supervision, and the BOT will consider further regulatory guidelines on a case-by-case basis.

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:

Nuttaros Tangprasitti
Partner

Krid Pongprapaphan
Associate

Authors