Laos Is Looking Into Developing CBDC With Help From A Japanese Fintech
The central bank of Laos is looking into issuing its own central bank digital currency (CBDC), according to a report. They plan to conduct a study into matter with the support of a fintech startup based in Japan.
The study by Laos’ central bank and Tokyo-based Soramitsu will begin as early as this month.
The initiative marks an attempt by Laos to extend the reach of its currency, the kip, as a digital Chinese yuan looms as a potentially powerful presence in the Southeast Asian nation with close economic ties to China.
The Bank of the Lao People’s Democratic Republic recently signed a memorandum of understanding with the Japan International Cooperation Agency on studying the development of a central bank digital currency.
A digital version of the kip would make policymakers better able to gather data needed to take the pulse of the economy, such as the amount of money in circulation.
Laos has enlisted Soramitsu, one of the many startups applying blockchain to finance. Soramitsu helped develop Cambodia’s Bakong digital payment system, an attempt to ease that country’s dependence on the dollar.
The Japanese company will undertake the Laos study, which will asses the role of banks and other intermediaries and the country’s needs for financial inclusiveness, among other areas. If Laos decides to issue a digital currency, Soramitsu may play a role in its development.
Landlocked Laos, which includes hydropower and minerals as main exports, counts China as its second-largest trading partner, after Thailand, according to World Bank data.
In Cambodia, the Bakong app has topped 200,000 downloads since its debut in October 2020 and can be used at about 2,000 stores. Soramitsu and other fintech players are looking to further expand the digital payment platform’s reach.
Elsewhere in Asia, Bhutan said in September it was partnering with U.S.-based blockchain player Ripple on a pilot digital currency project.
These moves come as China prepares to launch a digital version of its currency as early as next year.
While the digital yuan is likely to be a force only within China’s borders in the early stages, Beijing is expected to seek to give it international reach soon or later. The People’s Bank of China, the country’s central bank, has already said it will considering testing cross-border digital yuan payments.
The U.S. dollar has long been the mainstay currency, officially or informally, in many Asian emerging-market economies. But since the global financial crisis, Asian nations with high levels of trade with China have become more concerned with their currencies’ stability in yuan terms. Central bank-issued digital currencies are seen by some as a way to curb excessive yuan inflows.
While the Chinese CBDC is mostly tested domestically at this stage, Beijing is likely to promote it as a tool for international transactions, sooner or later. China is already working with Thailand, and UAE on a project led by the Bank for International Settlements (BIS) Innovation Hub. Its special administrative region of Hong Kong announced in June it wants to connect its domestic payments system with the e-CNY infrastructure to trial the digital currency in cross-border scenarios.
Besides the People’s Bank of China, dozens of central banks around the world are currently working to develop and launch CBDCs. These include the U.S. Federal Reserve, Bank of Russia, and the European Central Bank. In Asia, Bhutan and U.S.-based blockchain firm Ripple announced last month their partnership on a pilot digital currency project. The tiny Himalayan kingdom, which also borders China, plans to experiment with the digital version of the national fiat currency, the ngultrum, on Ripple’s private ledger.
