Appendix 2 - Wholesale CBDC: cross-border examples

Summary

Thailand

In 2018 the Bank of Thailand (BoT) launched its first CBDC project (Bank of Thailand 2019): a proof of concept (Inthanon Project) for a Corda DLT-based project for wholesale domestic and cross-border funds transfer using central bank digital currency. A second project, which will only be discussed here in passing, was for a DLT scripless bond project, an initiative to increase efficiency for saving bond registration and sales processes.

The project reported success in three key areas which demonstrated the potential for a DLT system. Firstly, the system was able to handle both tokenized cash and bonds, that is two separate asset classes. Secondly, it had the ability to create and exchange tokens simultaneously, avoiding the necessity for intermediaries. Thirdly, banks were able to settle in cash tokens around the clock and facilitate business when closed.

Other issues considered provided mixed evidence and a need in some operations to adjust the system functionality. For example, achieving settlement finality, which is a necessary condition of payment systems, including RTGS systems, meant the BoT running a single “notary” node to achieve consensus on the final settlement of transactions.

Another important issue examined was privacy, especially privacy for transactions. Essentially, the Corda “blockchain approach” identifies only a transaction identifier of the tokens exchanged so that the central bank, or other qualified nodal participants (namely banks), are not able to have information on the token amounts, the sender, the recipient or the asset type, only that the token(s) have been spent and the transaction irrevocably concluded.

Resiliency, of both the data involved and the network itself was tested. Although generally, DLT-based systems offer high resilience against data failures at any specific node, because each node can request copies of data from other nodes. In the project, privacy issues meant that this was not permissible. Instead, specific control points were established that automatically saved the relevant transaction data.

In terms of network resilience, it was found that in bilateral transfers, if the notary node failed the specific transaction involved could not be settled, but other nodes worked. In terms of automatic liquidity provision (ALP) – a key component of central bank action to provide liquidity to banks running short of cash reserves in RTGS systems – both the notary node and the separate BoT node were critical in ensuring network resilience, failure of either would be inimical to the adequate functioning of the system.