Cambodia officially launches quasi-CBDC

Cambodia’s central bank officially launched its blockchain-powered payment system, named Project Bakong, on October 28, becoming the first central bank in Asia to go live with such a system.

The peer-to-peer payment system runs on blockchain but unlikely many CBDC prototypes it does not involve the exchange of central bank-backed tokens. Bakong supports transactions in both Cambodian riel and US dollar. 

The quasi-central bank digital currency (CBDC) aims to reduce money transfer costs, improve financial inclusion, and promote the use of Cambodian riel, the National Bank of Cambodia (NBC) says.

“After we piloted bakong for more than a year, we decided to officially launch it,” Veasna Kru, director of information technology at the NBC, tells Central Banking. “It is the backbone of payment systems in Cambodia.”

The blockchain system is available via apps for iOS, Android, and desktop devices, the central bank says. Users – consumers and businesses – can register by providing a national ID card, account name and mobile phone number.  

Retail users and businesses can access the network via 17 local banks, financial institutions and payment services providers in Cambodia. After pilot-testing for more than a year, the system now has 10,000 active end-users, the central bank says.

Bakong was co-developed by the Cambodian central bank and Japanese fintech company Soramitsu, which won Central Banking’s award for best CBDC partner in this year’s FinTech and RegTech Global Awards.

Emerging economy leapfrog

Cambodia became the second country to officially launch a blockchain-powered payment system after the Bahamas crossed the finish line first on October 20. Emerging economies have been the fastest to issue CBDCs as they seek to reduce transaction costs and promote financial inclusion.

The Bahamian system is more clearly a CBDC, whereas the Cambodian system combines elements of CBDC with more standard design features of payment systems.

Bakong does not give users direct access to central bank money, but bakong balances must be matched by banks’ deposits with the NBC, giving bakong a “cash-like” quality. Furthermore, payments are settled instantly across the central bank’s systems.

“Financial inclusion is a primary agenda of the NBC,” the central bank said in a bakong white paper published in June. “One of the effective measures to promote financial inclusion is to ensure a cashless society where transactions could be performed digitally, and money transfer/mobile banking is accessible and affordable to every citizen.”

Only 22% of the population had a bank account in 2017, according to the World Bank, while 96% own a mobile phone.

Bakong will have potential to bring those unbanked people into the formal financial sector, which could contribute to the reduction of poverty in Cambodia, the NBC says. With user-friendly applications and a simplified know-your-customer procedure, bakong users are able to access the platform for all banking transactions, such as payments, remittances, credit, and savings.

For Cambodia, the blockchain-powered payment network can also promote the use of the riel over the US dollar, which makes up around 80% of bank deposits in the country.

“The development of bakong is expected to encourage the use of local currency in the sense that it facilitates the payment of high-value transactions instead of using US dollar,” the NBC says. “Furthermore, the bakong can be utilised as a tool in promoting the use of local currency by providing advantages to transaction in riel over those in US dollar.”