As the world increasingly shifts towards digital payments and currencies, central banks across the globe are exploring how such emerging technologies can be used to address pain points in the financial system, while at the same time providing the implicit trust and protection of a central bank.
One way that central banks are looking to digitise their financial infrastructure is through the introduction of central bank digital currencies (CBDCs) — a central bank-issued digital currency that represents a liability of the central bank.
CBDCs can be either retail (the digital equivalent of cash for use by households and businesses), or wholesale (accessed only by financial institutions, similar to existing central bank settlement accounts).
As of October 2021, the Bank for International Settlements (BIS) reports that there are two retail CBDCs that have gone live while CBDC pilots are underway in 26 jurisdictions. In total, 65 central banks, including the Bank of Thailand, have communicated publicly about their work on CBDCs as they prepare for the future financial landscape.
Underpinned by blockchain technologies, CBDCs are paving the way forward for central banks for a host of reasons. A common policy goal in Asia Pacific is the need for a digital complement to fiat central bank money, in order to support more resilient and diverse payment systems.
REACHING THE UNBANKED
However, as central banks have realised the benefits CBDCs offer, policy goals have further evolved to address some of the region’s greatest socio-economic challenges. This includes driving greater financial inclusion among the unbanked — which according to the World Bank stands at around 18% of the adult population in Thailand.
In line with this, Ripple recently partnered with the Royal Monetary Authority of Bhutan to pilot a CBDC with the aim of increasing financial inclusion from the current 64% to 85% by 2023. Ripple also recently announced a partnership with the Republic of Palau, focused on developing strategies for cross-border payments and a US dollar-backed digital currency in order to help provide the citizens of Palau with greater financial access.
CBDCs are also reimagining how we define and exchange value to create more resilient and diverse domestic payment systems. A CBDC could be programmed to support specific policy goals — such as delivering targeted financial stimulus support, or for providing assistance in times of a crisis. CBDCs used for this purpose could be time-bound, made region-specific, and linked to specific policy outcomes.
However, something that is often overlooked yet is crucially important is how CBDCs could transform cross-border payments in an increasingly interconnected global labour market — especially among nations where remittances play an important role in economic development.
In Thailand, like many developing nations across Asia Pacific, remittances are an economic lifeline. Overseas Thai workers remitted US$5.93 billion into Thailand in 2020, stimulating economic growth and contributing to household savings. This represents a 39% increase from the $4.26 billion remitted into Thailand in 2018.