Does Thailand need a CBDC?

Written by Kapronasia || August 14 2023

As a medium-income country with a high rate of financial inclusion for the region – more than 80% of Thais have a bank account – Thailand is not the first country we would expect to briskly adopt a digital fiat currency. The purported benefits of a CBDC become nebulous without a pressing financial inclusion need. For that reason, we suspect that the Bank of Thailand has been in no rush to launch a digital baht. But that doesn’t mean it isn’t interested in test driving one – hence the retail CBDC pilot that recently got underway.

This month, the BoT’s retail CBDC trial will wrap up. Working on the project with the Thai central bank are Bank of Ayudhya (Krungsri), Siam Commercial Bank (SCB), and 2C2P (Thailand). Their main objective with the pilot is to test drive a new financial infrastructure that aims to lower the cost of financial transactions while improving efficiency.

But will a digital baht be significantly better than Thailand’s existing, pretty darn good digital payments infrastructure? Not necessarily. Thailand has e-wallets galore, and PromptPay already has made it possible to pay domestically and to several other countries in the region with just a mobile number and the scan of a QR code.

We understand that in theory, if the digital baht proves to be functional and stable, then it might be able to free up some bandwidth on the PromptPay rail – which can get congested during peak periods. However, we imagine that’s something that PromptPay can work out irrespective of whether Thailand introduces a digital fiat currency.

It seems that the team working on the digital baht pilot is cognizant of the issue. Sam Tanskul, managing director of Krungsri Innovate, a corporate venture capital arm under Krungsri, told The Bangkok Post that the BoT “needs to determine a strategy to differentiate retail CBDC from PromptPay service.”

Further, in theory, if the central bank no longer needs to produce as many paper notes and coins, then the cost of supplying physical money to the economy will be reduced. But once again, can’t the same thing be accomplished with existing cashless payments? In Japan’s case, though the Bank of Japan is testing a digital yen, they are currently focusing on using available cashless payment methods to cut down on the amount of cash circulating in the economy.

For its part, Sweden has reduced the use of cash to the point that less than 10% of the population uses it, with the national payments system Swish (created in 2012) playing an important role. In March, a Swedish government-appointed investigation reported that the country does not yet need a CBDC. In a 900-page report that took two years to complete, it concluded that the case for an e-krona is not yet strong enough.

In Thailand’s case, we suspect the BoT and its partners on this retail CBDC pilot may come to a similar conclusion. Last October, BoT governor Sethaput Suthiwartnarueput said that global retail CBDC development is expected to take more than five years before a market launch and noted the BoT had yet to see how a digital baht offered greater or different benefits than PromptPay.

That said, it seems the BoT is keen on a wholesale CBDC as evidenced by its enthusiastic participation in the mBridge pilot with the United Arab Emirates, Hong Kong and mainland China. During the pilot, aggregate cross-border transactions totaled US$22 million, while it was reportedly possible to speed up cross-border transfer times from three to five days to just a few seconds. Some observers of the mBridge project think that there may be a working product available by year-end.