Laos moves forward with CBDC pilot

Written by Kapronasia || February 28 2023

Most Asian countries are mulling the creation of a central bank digital currency (CBDC), but only China and Cambodia have launched one. We think that CBDCs make the most sense for countries with pressing financial inclusion needs, and with that in mind, the launch of Laos’s first CBDC pilot led by the same Japanese blockchain company that developed Cambodia’s Project Bakong can be viewed as a positive development.

A CBDC that can accelerate the ability of people to join the formal financial system more quickly than traditional digital payments alone would be helpful for Laos, which is one of the most impoverished Asian countries. Laos has GDP per capita of about US$2,500, higher than Cambodia and Myanmar, but behind every other country in East Asia. Further less than 30% of Laos’s adult population has a bank account, one of the lowest rates in the region.

During the pandemic, Laos has encountered some practical problems owing to its cash-dependent economy. For instance, it has struggled to deliver cash relief handouts recorded largely on paper-based family books to its people during the pandemic. A digital payment system could likely ameliorate the distribution of aid, making it faster, more transparent and more targeted, allowing the government to provide aid to those most in need. Additionally, a digital kip would probably make everyday retail transactions more convenient and boost the country’s e-commerce sector.

In February, the central bank of Laos began testing a proof-of-concept CBDC (the DLak) as part of its research into the potential issuance of a digital kip. During the pilot, the central bank will issue DLak in exchange for fiat currency, which can then be obtained by individuals through commercial banks. To make purchases, users use a QR code and app provided by the participating sellers. Transactions made using the DLak will be instantly converted to physical currency by a commercial bank, allowing sellers to receive payment in real time.

Tokyo-based Soramitsu, which led the feasibility study, is playing a key role in the digital kip pilot.  “The conclusion drawn from the PoC will be used to further adjust the CBDC requirements to best respond to the challenges presented by the financial landscape of the Lao PDR,” the company said in a statement, adding that the result of the proof of concept will “influence and be a prerequisite” to the Laotian central bank’s consideration of an official CBDC launch.

Should Soramitsu implement a similar version of Project Bakong in Laos, having the same CBDC infrastructure could facilitate seamless cross-border payments between Laos and Cambodia.