Central bank and 14 commercial banks adopt blockchain

Thai financial institutions are banking on higher technology as the Bank of Thailand said last week it will begin using blockchain technology to issue bonds and in its wholesale digital currencies project, while 14 Thai commercial banks launched a joint initiative to issue letters of guarantee using blockchain.

Using blockchain technology will improve productivity – shortening the time to underwrite bonds from 15 days to just a few – while lowering costs and increasing security, Bank of Thailand Governor Veerathai Santiprabhob said during a speech at the Bangkok Fintech Fair 2018 last week.

The governor said that the central bank has a “proof of concept” to use blockchain in a wholesale digital currency project called Inthanon. Central banks in several developed countries, including Canada, England and Singapore, have already implemented wholesale central bank digital currency services and Thailand wants to keep pace with leading international financial institutions.

“More than five financial institutions, both local large and foreign banks, have shown interest in participating. With the massive transaction volume of such banks, the project would improve efficiency and the country’s ecosystem,’’ Veerathai said.

If the various central banks can link up their projects and systems, it would create a platform that would speed up interbank settlements while lowering their costs.

Also aiming to keep pace with global digital development, Finance Minister Apisak Tantivorawong said that first drafts of two laws to regulate crypto currencies and ICOs (initial coin offerings) are being considered by the legislature. Laws generally require three readings in the legislature before submission to the cabinet and then the Royal Gazette confirming their passage into law.

All 14 major Thai commercial banks agreed last week to work together to develop a shared platform for trade financing using blockchain technology. The platform would initially be used to enable the banks to issue blockchain-based letters of guarantee. The letters are used for a variety of purposes including bidding on state enterprise auctions.

Going digital will cut down on paperwork and speed up the process, bank officials said.

According to Kasikornbank, 500,000 letters of guarantee worth more than $43 billion were issued through Thailand’s commercial banking system in 2017, up 8 percent from the previous year.

The platform is being tested in a regulatory sandbox, but is expected to be rolled out for public use in September.

Kasikornbank has been using blockchain for these purposes for several months already, having collaborated with U.S. computing company IBM last July to test and launch it. “It is built on a distributed ledger framework called Hyperledger Fabric provided by the Linux Foundation. State enterprises are already using letters of guarantee issued through the system,’’ wrote the Nikkei Review.