Laotian central bank launches CBDC pilot

Laos’s central bank started testing a central bank digital currency (CBDC) prototype on February 7, with the support of Japanese fintech firm Soramitsu and the Japanese government.

The Bank of the Lao PDR will test the Digital Lao Kip, or DLak, using a blockchain-based system developed by Soramitsu.

The central bank signed a memorandum of understanding with the company to kickstart the proof-of-concept trial on February 6, according to a statement issued by Soramitsu.

The trial follows the completion of a one-year feasibility study on a possible CBDC issuance in Laos, carried out by the central bank, Soramitsu and the Japan International Co-operation Agency (JICA). The JICA, a government agency, provides loans, grants and technical support to developing economies.

Soramitsu previously worked with the Cambodian central bank to develop the Bakong electronic wallet, which went live in October 2020. The hybrid – retail and wholesale – CBDC allows for real-time gross domestic and cross-border payments between institutions and end users.

The firm said it will use a modified version of Bakong in Laos’s proof-of-concept. Officials from the Laotian central bank, the Japanese embassy in Laos and the JICA will also be involved in the trial, Soramitsu said.

During the study, the central bank will distribute the CBDC prototype to consumers via commercial banks. Consumers can make purchases at stores by scanning QR codes using a mobile app.

Based on the results of the study, the central bank will carry out further research toward the official launch of a CBDC, Soramitsu said.

One of the main goals for the central bank is to make digital financial services accessible to more people. Only 37.3% of adults in Laos had a bank account in 2021, according to the World Bank’s Global Findex Database, compared with 76.2% globally.

The central bank is also exploring CBDC as a means to reduce the time and cost of cross-border remittances and ensure economic security.

The Japanese Ministry of Economy, Trade and Industry (METI) has selected Soramitsu to help central banks across Asia-Pacific to carry out CBDC studies.

In June last year, Soramitsu announced that it would be working with central banks and financial authorities in Vietnam and the Philippines to assess the prospect of introducing CBDCs in the countries.

Earlier in 2022, Soramitsu also launched an CBDC study involving Fiji, Vanuatu, the Solomon Islands and Tonga, as part of a multilateral development partnership between Japan and 18 Pacific Island countries.

A number of other central banks in South-east Asia have also been studying the possibility of issuing their own CBDC. In late November 2022, Indonesia’s central bank unveiled plans to develop a digital rupiah, with a focus on designing a wholesale CBDC at the first stage. Last year, the Philippines’ central bank also said it would be conducting a wholesale CBDC pilot.

Japan announced it was launching a pilot of its own CBDC today (February 17). The Bank of Japan will develop an experimental system to test end-to-end CBDC transactions, starting in April.