New digital currency will be secure but it will need to be traceable to prevent fraud while offering its users far more security. The ‘new money’ or ‘digital base money’ could make it easier to provide financial services and funding to small business while also reducing payments and transaction costs for consumers spending money in Thailand.
Thailand is reported to be ready to test a ‘digital baht’ in the second quarter of next year. On Monday, while emphasising that Thailand’s financial system was stable, the Bank of Thailand Governor, Mr Sethaput Suthiwartnarueput ruled out the support of cryptocurrencies by the central bank although he did give the nod towards the development of a stronger digital banking system to assist small business concerns particularly those seeking access to credit markets. It is a move that comes alongside efforts by the government to regulate and control the internet and online economy as research by Deloitte in August showed conclusively that the Covid-19 pandemic has driven most business activities online in a powerful economic shift.
The new digital currency and the use of blockchain technology could be the catalyst for a completely new financial support system for smaller business operators in Thailand and with the right balance of light regulation and effective oversight of dominant, foreign players, it could assist small businesses in Thailand recover from the devastation caused by the virus.
It comes as the economic fallout of the COVID-19 pandemic has been shown to have hit small business concerns hard while dramatically quickening the shift of commercial opportunities and day to day business interaction to the online realm.
The Bank of Thailand, in April, issued a briefing document on the new ‘digital baht’ concept and revealed it was involved in consultations with other central banks worldwide.
Pandemic recession has seen the erosion of the Thai economy with many small business owners losing out to bigger online competition, much of it offshore
There is concern among economists that the changes ushered in by the pandemic may have caused the erosion of important segments of the economy with small businesses losing out to stronger and bigger competitors online while the government frets that large global platforms are not yet properly regulated in the kingdom.
Thailand’s Revenue Department commenced the implementation of a 7% VAT requirement on the provision of digital and electronic services from the 1st September while in July, the kingdom’s Electronic Transactions Development Agency (ETDA) issued a draft decree as part of the Electronic Transactions Act, for public consultation purposes as it seeks to assert control over all online platforms servicing the Thai market and end consumer.
One requirement in the new decree provides that all substantial platforms with a turnover of over ฿1.8 million in Thailand should have a local presence and representative in the country.
Plans to test a ‘digital baht’ issued by the Bank of Thailand in the second quarter of 2022 in the pipeline
It is understood that the central bank governor, on Monday, was referring to proposals for the introduction of a ‘digital baht’ in the second quarter of next year to make financial services easier for firms and individuals to access while also making transactions less expensive.
This new payment system will be based on blockchain technology but will not, in itself, represent a new currency or cryptocurrency.
Deloitte in August confirmed the radical shift to online activity by Thai business operators
In August, the international accounts and management accountancy firm Deloitte showed that firms had accelerated their move into the online business realm during the COVID-19 emergency.
Narain Chutijirawong, an executive director with the firm, said that the adoption of online channels has already gone beyond a critical level with a clear majority of firms, 56%, now fully committed and operating online compared to a majority who were only evaluating the prospect before the virus struck.
‘The majority or 56% of surveyed companies have already transitioned to a digital adoption stage, compared to 12% before the pandemic, from a digital evaluation stage. Businesses in the digital evaluation stage now contribute to just 12% from 59% before the pandemic,’ he said.
Telecommunications and media sectors led the way in adopting new digital technology to change their business operations and models in the last year
He indicated that the telecommunications and media sectors were leading the way in changing the face of how business is being done in Thailand but the most significant change had been seen in the healthcare and energy sectors which still require a lot more work to be done.
‘However, these two sectors are also struggling to recruit data analysts and scientists who play a crucial role in digitalisation,’ Mr Narian disclosed as he highlighted future challenges such as the harnessing of electric vehicles and green energy to business systems.
Hurdles remains such as a lack of skilled staff
As it stands, firms are engaged in the increasing use of beneficial technology advances such as cloud computing, the internet of things and still evolving mobile technology which all showed growth of 19%, 16% and 15% respectively.
Hurdles remain such as a dearth of talented people with critical thinking skills, outdated thinking with regard to technology in some firms and a continued silo management philosophy in many Thai firms even within small and medium-sized enterprises said Mr Viney Hora, another executive director with Deloitte.
New digital baht will be a new payments channel with new operating principles, this will be online cash
In the meantime, the new ‘Digital Baht’ will add to the current range of payment options for businesses and firms.
It will not be a replacement for the existing currency or any other payments channels, this will be a new channel with new operating principles.
It will be issued by the Bank of Thailand.
To acquire the digital baht, it must be purchased at the going rate for the Thai baht and can be stored in a digital wallet.
Blockchain product known as a Central Bank Digital Currency (CBDC) needs regulation and traceability
This will be an online cash concept supported by blockchain technology.
Such products have come to be known as Central Bank Digital Currency (CBDC).
This new money will be outside the normal bank settlement system and is also referred to, in some quarters, as ‘digital base money’.
For instance, for those who do not use the internet, such funds could be held on a card with a chip and used just like a credit card when making payments.
It is clear that the new proposal may represent a double-edged sword and will need efficient but effective regulatory oversight since such funds will not necessarily be moved through bank accounts and financial institutions.
Aim to make new money fraud-proof and secure
The ability to track ownership and use of funds will be a key security requirement and indeed with such an approach while using blockchain, the new digital currency can help prevent fraud quite unlike the current situation with cryptocurrencies.
Central banks are already discussing this between themselves particularly where such CBDC funds cross international borders to prevent them being used for money laundering purposes.
The aim is to make them traceable while at the same time fully secure and backed by national central banks.
Canada and Japan also looking very closely at a digital currency while blockchain technology is already being used in Thailand in the financial system
Many central banks are still studying the concept and practicalities of digital base money.
Most central banks across the world and indeed even some financial businesses in Thailand are either looking at or already utilising blockchain technology to add security and flexibility to banking systems particularly with regard to wholesale settlements.
In 2019, the Thai Bond Association announced plans to launch its own cryptocurrency using blockchain technology to underpin it.
Both Canada and Japan are reported to be studying this technology and the possibility of using it to not only speed up the transition to a functioning online economy but to broaden access to financial services and if possible, to provide governments with real-time information on the economy and economic trends.
Mastercard reveals that Thai consumers are more open to cryptocurrencies and new modes of payment
In August, Mastercard in Asia revealed that its Thai customers were particularly interested in exploring new payment systems with 96% saying they were examining options while a very high 46% of them felt comfortable with the concept of cryptocurrencies compared to an average of 40% across the Asia Pacific region.
Executive Vice President for the firm in the region, Sandeep Malhotra, revealed that Mastercard is working closely with cutting edge payment firms worldwide to explore new options for customers.
These would include ways to use their credit card in association with QR codes, digital wallets as well as for cryptocurrencies.
2022 will see the beginnings of change in the financial services industry giving more power to the consumer
Among the array of talented firms working with Mastercard are project teams working on new ways to utilise blockchain technology to make not only payments more secure but including ways to bypass the internet while central banks are looking at ways to help support business concerns and also manage economic outcomes.
It is clear that from 2022, given a shunt by the pandemic, we will begin to see a glimpse of a new future in financial services in Thailand particularly aimed at the less well off and smaller business sectors facing competition from powerful online competitors, aiming to level the playing field somewhat by bringing business back down to a level of personal service and support.