The Central Bank of Laos (BOL) has just tested its own digital currency (CBDC) by collaborating with a partner from Japan.
A digital currency or CBDC is a digital format of fiat currency issued by central banks. CBDC has the characteristics of both cryptocurrencies and fiat money. CBDCs are issued by central banks but use the same algorithm as cryptocurrencies.
The Laotian CBDC project is based on a Proof-of-Concept (PoC – proof of concept) mechanism. Understandably, this is the conduct of testing a method or an idea to prove its feasibility.
Specifically, the Central Bank of Laos signed a Memorandum of Understanding (MOU) with Soramitsu – a Japanese Fintech (financial technology) company. The product of this cooperation agreement is the digital version of the Lao Kip currency called DLaK (Digital Lao Kip).
According to information on Soramitsu’s website, prior to the cooperation agreement, the company completed a pre-feasibility study for a blockchain-based payment infrastructure in Laos under a project led by the Legal Cooperation Agency. Japan International Cooperation (JICA) initiated.
Regarding the operating process, the Central Bank of Laos will create a CBDC and then issue it to a commercial bank. The commercial bank will then send the CBDC to the individual accounts and allow them to use the digital currency to pay at the store.
The digital Kip will be sent by the store to a commercial bank, before being collected by the Central Bank of Laos. During the pilot phase, the operation of DLaK will be continuously adjusted to meet the requirements. The results of the CBDC implementation under the Proof-of-Concept mechanism will determine the official implementation of the CBDC system in Laos.
It is worth noting that Soramitsu is also a partner with the National Bank of Cambodia to deploy Bakong – the country’s national digital currency. After about 2 years of implementation, as of July 2022, Bakong has 445,000 users with 12.7 million transactions, with a total transaction value of $7.2 billion.
According to Soramitsu, the CBDC system provided by the company to Laos is a modified version of the Bakong system that was deployed in Cambodia earlier. Thus, following Cambodia, Laos is the second country in Indochina to conduct a trial of its own digital currency.
More than 100 countries around the world are working on plans to implement CBDC at various levels. For Vietnam, the Government has assigned the State Bank to research, develop and pilot the use of virtual currency based on blockchain technology in the e-Government development strategy for the 2021-2025 period.
Last year, the Vietnam Blockchain Association – the first official legal entity related to Blockchain technology in Vietnam was also officially established. There have been many proposals for the development of CBDCs in Vietnam, but all of them just stop there.
Sharing with VietNamNet about Vietnam’s opportunity to have a national digital currency, Mr. Safdar Khan – Southeast Asia President of Mastercard said that CBDC will help modernize the national payment system. , while maintaining the central bank’s role and access to money in the context of reducing the use of cash.
CBDCs also help overcome inefficiencies associated with the costs of printing and moving money paid for by the central bank. With CBDC, banks can introduce new payment functions. Governments can also improve cross-border payments with a central bank-issued digital currency.
According to Safdar Khan, policymakers should compare the suitability of central bank-issued digital currencies with other new forms of payment infrastructure to find the most appropriate approach. for domestic demand.