The Bank of Thailand continues to investigate central bank digital currency solutions

The new CBDC payment system prototype will be integrated with the procurement and financial management systems of the Siam Cement Public Company (SCG) and its suppliers. The project will be developed by the Digital Ventures Company.

Digital Ventures is the Fintech investment arm of Siam Commercial Bank. The investment company has numerous strategic partnerships and start-up investments across Asia. The company’s portfolio includes strategic investments in Golden Gate Ventures, Arbor Ventures, and Ripple.

Ripple is an enterprise blockchain startup that builds systems for cross border payments settlement, currency exchange, and remittance. The XRP (XRP) payment settlement currency is currently the fourth largest digital asset on the Brave New Coin market cap table with a market capitalization of ~US$ 8 Billion.

The new BOT project will begin in July 2020 and is expected to conclude by the end of the year, after which the BOT will publish the project summary and outcome accordingly. The project scope will include conducting a feasibility study and developing a process to integrate CBDC.

The new project builds on two BOT Digital Ledger Technology (DLT) initiatives launched in 2018, Project Inthanon and Project Scripless Bond. These two initiatives were designed to catalyze an industry-wide exploration and assessment of the potentials and applications of DLT

Project Inthanon is a collaborative effort initiated by the BOT, together with eight commercial banks. The prime focus was to develop and test a DLT-based, real-time gross settlement system (RTGS) by issuing wholesale CBDC. The project was based on a decentralized payment network set up on the Corda platform with the BOT node and participating bank nodes.

Corda is an open-source distributed ledger platform built to record and manage contracts between mutually distrusting parties. Corda was built by R3 in collaboration with financial institutions. It was designed to meet the requirements imposed by financial service regulators, conform to industry standards, and deliver on the promise of DLT. Corda was chosen as multiple networks can join to create a wider network with assets that can be transferred between them.

The notary service in Corda serves to prevent double-spending within the network. Once the notary service is satisfied that a digital token has not been spent before, it issues a signature to indicate transaction finality.

In assessing Inthanon, the Asian Development Bank Institute (ADBI) concluded that DLT can implement key functionalities in RTGS, while smart contracts can handle complex use cases that include bond life cycle events, fraud prevention, and regulatory compliance. The technology also demonstrates the ability to support 24/7 payment operations and provides an atomic delivery-versus-payment settlement without intermediaries.

Further, the system was shown to provide a technical settlement finality for the funds transfer and the exchange between cash and bond tokens. Settlement finality describes the way a system reaches consensus when a change of ownership occurs.

Transaction and settlement privacy was achieved given the Corda platform design, where the information is shared on a need-to-know basis. Meanwhile, the network resiliency was identified as an ongoing challenge, as the Corda platform requires a notary node to validate the transaction, becoming a single point of failure issue.

Further issues that were identified as a prerequisite before moving the project moved into production included technology capacity: performance testing and cybersecurity; governance arrangement: role and responsibility among parties in a decentralized network; and legal and regulatory consideration: the review of related laws and regulations needed in advance of going to production.

The second proof of concept (POC), the Scripless Bond Project, was designed to tackle friction in the Thai government savings bond sales process using Hyperledger Fabric, an open-source blockchain framework to assess benefits and business values that could potentially improve efficiency.

According to the ADBI, The POC demonstrated that the DLT Scripless Bond could successfully meet core business demands, while generating business values for all relevant parties. Key benefits include individual investors being able to receive bonds within 2 business days, as opposed to the current settlement time of 15 business days, and investors can purchase bonds with their full rights from any selling agent without the current purchasing limit per bank.

The POC also reduced complexity and bond issuers could monitor and manage sales in real-time, increasing competition among selling agents. Overall, the project lead to greater efficiency, transparency, security, and a reduction in operating costs across the entire value chain.

Following the POC’s success, the DLT Scripless Bond project will be been put into production. However, more research is required to address certain issues discovered through the POC, for instance, the performance capacity of blockchain-based systems, in particular, the Hyperledger platform. Alternative mechanisms and solutions have been adopted in order to elevate the performance of the overall system to achieve business requirements.

Furthermore, cybersecurity, data privacy, governance structure, roles and responsibilities, procedures, as well as related business and technical issues have been continually addressed in order to implement the production system.