The Bank of Thailand (BoT) plans to take more time to develop its retail central bank digital currency (CBDC) to ensure it offers additional benefits to the financial system with good risk management.
Several central banks, including the BoT, have developed a retail CBDC, but none of them officially implemented the currency in the markets.
Global retail CBDC development is expected to take more than five years before a market launch, said central bank governor Sethaput Suthiwartnarueput.
He said on Friday the regulator wants to better understand the benefits and risks of retail CBDC, including whether there are additional benefits with regard to PromptPay, the country's digital payment infrastructure system. The central bank has yet to see such additional benefits, said Mr Sethaput.
The currency should eventually benefit everyone, changing the country's financial system, he said.
The BoT is collaborating with Siam Commercial Bank, Bank of Ayudhya, 2C2P (Thailand) Co, and around 10,000 retail users to test the retail CBDC with real-life applications on a limited scale. The pilot project has two tracks: foundation and innovation.
On the foundation track, CBDC is used to conduct cash-like activities, such as paying for goods and services. The testing phase is expected to begin at the end of this year and last through the middle of next year.
The innovation track focuses on programmability and will facilitate the development of innovative use cases for CBDC, resulting in new financial services for a wide range of customers, said Mr Sethaput.
He said the central bank plans to improve the regulatory sandbox process to increase the testing efficiency and speed up the testing process of financial innovations and technologies.
Previous testing in the sandbox took more time and the innovations showed fewer benefits than anticipated after exiting, said Mr Sethaput.
He said the central bank has been progressing in wholesale CBDC development as part of the Multiple CBDC Bridge (mBridge) project to facilitate cross-border payment areas.
According to the central bank's statement, the Bank of Thailand together with the Hong Kong Monetary Authority, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China, and the BIS Innovation Hub Hong Kong Center successfully completed the first pilot using wholesale CBDC as part of the mBridge project.
The mBridge pilot was conducted this year from Aug 15 to Sept 23, covering three transaction types, comprising an issuance and redemption of CBDC between commercial banks and central banks, cross-border payment in local CBDC between commercial banks, and cross-border exchange of local CBDC and foreign currency CBDC between commercial banks.
Aggregate cross-border transactions conducted during the pilot project totalled 164 worth more than US$22 million (827 million baht) in value.
With the mBridge platform, it was possible to speed up cross-border transfer times from 3-5 days to just a few seconds.
The technology will help cut costs, improve business efficiency, reduce settlement risk, and support the use of local currencies in international payments, said the Bank of Thailand.
The mBridge project will continue building and testing the technology to improve existing functions and add enhanced features to the platform, while considering policy, regulatory and legal implications, said the central bank.
Following this effort, the central bank plans to consider pursuing experiments in more real-world settings.