The current monetary system has long served as a medium of exchange for goods, but encrypted digital information systems are challenging that legacy.
Although this form of money is not yet widely used like the monetary system of fiat money issued by governments, the recent approval by the cabinet of the Government Token (G-Token) represents a small but significant step towards familiarising the public with tokens, a type of digital asset.
What is G-Token?
G-Token is a new digital financial instrument to be issued by the Public Debt Management Office (PDMO) under the Finance Ministry. The token serves as a means of raising funds from the public to offset the government's budget deficit.
Typically the PDMO raises funds by issuing promissory notes, treasury bills and government bonds. With G-Token, the borrowing is via digital tokens issued to individuals who lend to the government. For the public, purchasing G-Tokens is essentially no different from buying traditional government savings bonds.
A digital token is defined in the Emergency Decree on Digital Asset Businesses as an electronic data unit created on an electronic system or network, with the purpose of: defining the rights of a person to participate in an investment in a project or business; or defining the rights to receive goods or services, or other specific rights, as stipulated in the agreement between the issuer and the holder.
This definition includes other rights-representing units as prescribed by the Securities and Exchange Commission (SEC).
The PDMO expects the purchase and sale of G-Tokens, which will be conducted via mobile applications such as Krungthai Bank's Pao Tang app, to gain popularity among younger individuals who recently entered the workforce, as they are generally more familiar with using such apps compared with older generations.
An advantage of G-Tokens compared with traditional savings bonds is the tokens are accessible to a broader population -- especially the younger generation. This helps promote effective savings habits among youth or recent graduates starting their careers who are familiar with technology and can access such platforms easily, according to PDMO.
With traditional savings bonds, once sold in the primary market initially by the public, any transfer of ownership had to go through the secondary market, which took time to process.
Even though the current system is scripless, the process still takes more than seven days.
As for interest rates, they follow the market's yield curve, with rates similar to those of traditional savings bonds. However, the returns are generally higher than those offered by commercial bank deposit accounts.
According to Patchara Anuntasilpa, director-general of PDMO, G-Tokens also support both national and global policies promoting the digital economy.
With PDMO as the borrower, the cost of borrowing is lower than issuing traditional bonds or other debt instruments.
Typically PDMO incurs a borrowing cost of 0.03% of the issued amount. However, issuing G-Tokens backed by blockchain technology streamlines various processes, which is expected to reduce the borrowing cost to less than 0.03%, he said.
"When you purchase a token, you become the creditor and PDMO the debtor. As a creditor, you hold an asset, and you can transfer it to someone else -- that's your right and has nothing to do with PDMO," said Mr Patchara.
"Our responsibility is to repay the principal along with interest when the token reaches maturity."
How can G-Tokens be traded?
Trading of G-Tokens can be more flexible than trading traditional savings bonds, which typically have a six-month silence period after the initial purchase. In contrast, once G-Tokens are bought in the primary market, they can be sold immediately on the secondary market.
Under the old system, after a trade, it would take up to seven days to receive the proceeds from a sale. Even though government savings bonds are now traded using a scripless system, G-Token transactions provide near-instant or real-time settlement.
Moreover, trading of G-Tokens can take place through digital asset exchanges, of which there are currently nine licensed platforms.
Each transaction can involve a very small amount, down to decimal points within the system, or be set at 1 baht per unit.
Those wishing to trade G-Tokens on the secondary market must register and open an account via the exchange's app. Trading can take place 24 hours a day, seven days a week.
Does G-Token constitute a new currency in the system?
Mr Patchara said G-Token is neither a new currency nor a cryptocurrency.
The token is a means for the government to borrow from the public instead of issuing traditional savings bonds.
He said the Finance Ministry usually borrows money by issuing promissory notes, treasury bills and savings bonds, all of which are classified as debt instruments under the Public Debt Management Act.
This new method of fundraising is meant to improve efficiency, addressing the various shortcomings of traditional savings bond issuance.
The initial issuance of G-Tokens is capped at 5 billion baht, serving as a pilot project to test the system.
In the short term, G-Tokens are unlikely to replace the ministry's issuance of traditional savings bonds, said Mr Patchara. However, in the long term such a shift may be possible.
Borrowing through G-Tokens is part of the government's strategy to compensate for its budget deficit, identical to issuing government savings bonds, he said.
"The issuance of savings bonds must align with G-Tokens, because the government's savings bond customer base is still diverse. At some point -- we don't know when -- a full transition to digital might become feasible," said Mr Patchara.
Does the law allow PDMO to issue G-Tokens?
According to PDMO, while the issuance of G-Tokens is not explicitly mentioned in the Public Debt Management Act, the law does authorise the cabinet to approve borrowing by any method, as stipulated under Section 10.
Section 10 states borrowing may be carried out through a contract, the issuance of debt instruments or by any other method, as approved by the cabinet.
In addition, Section 17 of the 2018 Emergency Decree on Digital Asset Businesses states when offering newly issued tokens to the public, the token issuer must obtain approval from the SEC and must be a juristic person (either a limited company or public company limited), and must submit a registration statement and prospectus to the SEC.
The law also grants the SEC the authority to issue further regulatory exemptions or specifications.
Have any other countries issued G-Tokens?
PDMO claims Thailand's G-Token will be the world's first instance of a government borrowing directly from the public via token issuance.
The UK is expected to explore borrowing through tokenised instruments in the near future.
US Treasury Bonds have been tokenised, where the value of these bonds is converted into cryptocurrency or Bitcoin, then traded on digital markets.
