Cambodia’s quasi-CBDC is making headway

Written by Kapronasia || January 30 2023

We have published a few commentaries over the past year noting how central bank digital currency (CBDC) adoption in Southeast Asia is pretty slow. Cambodia is an exception, but its digital fiat currency is not exactly a CBDC in the traditional sense – an important distinction to make. Bakong is probably best described as a blockchain-powered retail payments system managed by the Cambodian central bank that allows interoperability among the different players in the country’s payments landscape.

One of the most insightful perspectives on Project Bakong came from Chea Serey, assistant governor and director general of the National Bank of Cambodia, around the time of its launch in late 2020. In response to a question about whether distributed ledger technology was necessary for the Bakong project, Serey told RadioFinance that he was not focused on DLT itself. “What matters is I've got something that I want to solve. And this technology happened to be there, and I'm just going to use it and whatever you call it, it doesn't really matter,” he said.

The Cambodian government launched Project Bakong because it believed a retail CBDC could accomplish three key policy objectives: boost financial inclusion—at the time of Bakong’s launch about 75% of the population was unbanked—improve digital payments infrastructure and eventually reduce the use of U.S. dollars in everyday transactions.

Working with Japanese blockchain firm Soramitsu, it ensured that transacting with Bakong would be simple and fast. The Bakong e-wallet requires just a phone number or QR code to transfer money or make a payment.

Bakong has been a modest – if not overwhelming – success. Determining its penetration rate depends on the data we want to use. For instance, a Jan. 2022 Nikkei Asia report, citing NBC statistics, said that Bakong had reached 7.9 million people, including those reached “indirectly” through partner bank apps. That looks fairly impressive given Cambodia’s population is just 16.7 million.

However, data cited by The Phnom Penh Post in a September 2022 report, also from the NBC, show that Bakong has just 445,000 users, assumedly direct ones, compared to 288,000 in late 2021 and just 45,000 in late 2020. As of July 31, 2022, Bakong had been used for 12.7 million transactions valued at US$7.2 billion, the NBC report said.  

The next steps for Bakong will be in the cross-border realm. It is already accessible in Malaysia through Maybank and Cambodian regulators say that that Cambodians in Thailand will soon be able to use Bakong to transfer payments home.

Additionally, in early 2022, the Asian Development Bank (ADB) teamed up with Soramitsu, Japan’s Fujitsu and US-based ConsenSys and R3 on a project to improve the efficiency and security of Asia-Pacific cross-border securities transactions. In a press release, ADB and its partners said that the system will advance the aims of the Asian Bond Markets Initiative's (ABMI's) Cross-Border Settlement Infrastructure Forum (CSIF), formed by ASEAN, Japan, China, and South Korea, collectively known as ASEAN+3.

Though several member states have tested DLT for domestic securities settlements or cross-border payments, this project will be the first in which securities are delivered instantly across borders, versus payment in multiple currencies, on a network of distributed ledgers.