Southeast Asian nation Laos has become the latest country to join the central bank digital currency (CBDC) train following the announcement of a partnership with Tokyo-based firm Soramitsu.
The memorandum of understanding signed between the Bank of the Lao PDR and Soramitsu will see Laos commence a proof-of-concept (PoC) in the coming days, Nikkei Asia reported. The PoC titled Digital Lao Kip (DLak) will explore the possibilities of a retail CBDC, existing with other payment options in the country.
Under the PoC, commercial banks can convert fiat kip to digital kip through the central bank and extend the same functionalities to their customers. With digital kips, individuals can pay for goods and services with merchants around the country, with the option for banking institutions to convert the CBDCs back to fiat currencies.
Soramitsu’s deal with the Laotian central bank is not its first foray into CBDCs, as it played a central role in designing Project Bakong, Cambodia’s version of CBDCs. Laos’ central bank notes that the PoC will be a customized version of Project Bakong‘s software, given the similarities between both countries.
Laos’ central bank confirmed that the experimentation would include the possibilities for use in cross-border payments with other countries in the region.
“Laos and Cambodia hope to make their digital currencies more attractive by jointly developing a cross-border payments system,” the report read.
Laos’ motivation to launch a retail CBDC lies in the need to increase growth in financial inclusion and ease the burdens associated with international remittances. The World Bank estimates that only 37% of individuals over the age of 15 have a bank account in the country, far below the global average.
Southeast Asian countries are going all in on CBDCs
Virtually all Southeast Asian countries are exploring the possibilities of CBDCs with their financial systems. While wholesale CBDCs are taking the lead, proponents for a retail offering are forging ahead despite the flurry of payment options jostling for customers in the region.
Indonesia, Thailand, and Hong Kong are at various stages of their CBDC development, while the central banks of Vietnam and the Philippines are closing the distance. Pacific island nations of Fiji and Tonga have indicated an interest in developing CBDCs to boost financial inclusion in their nations.
Nigeria and the Bahamas are among the countries to have launched their CBDCs, with China’s digital yuan inching towards a full-scale launch.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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