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Hong Kong and Thailand’s central banks have taken a step closer to implementing a joint central bank digital currency (CBDC) for cross-border payments.

On January 22, the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) officially announced the outcomes of a joint CBDC research project called Project Inthanon-LionRock, Cointelegraph reported.

Alongside publishing a joint press release, the banks have issued a detailed 90-page report providing an exhaustive analysis of the potential risks and benefits of CBDCs for real-time money transfers, liquidity management, regulatory compliance, and other aspects of finance.

After the HKMA and the BOT initiated the Inthanon-LionRock project back in May 2019, the banks completed the joint initiative in December 2019, the official announcement reads.

The project involved 10 participating banks from both Hong Kong and Thailand and featured a Proof-of-Concept (PoC) prototype based on distributed ledger technology. Thai participants included banks like Bangkok Bank and Siam Commercial Bank (SCB), while Hong Kong participants included HSBC and ZA Bank. Additionally, the project is supported by major enterprise blockchain consortium R3, which acts as a technology partner, the joint report notes.

Within the project, the banks created a cross-border corridor between Thai baht and Hong Kong dollars in order to allow participating banks to transfer funds and operate foreign exchange transactions on a peer-to-peer basis, which is expected to cut settlement costs and time.

The project is based on R3’s blockchain platform Corda and implements smart contracts in order to perform atomic Payment-versus-Payment (PvP) settlements for foreign exchange. A PvP settlement is a mechanism that ensures that the final transfer of a payment in one currency occurs if and only if the final transfer of a payment in another currency or currencies takes place.

Following a successful PoC, the banks concluded that the CBDC has the potential to significantly reduce intermediaries and settlement layers in comparison to the traditional banking payments system as well as prevent risks such as double spending.

The joint report reads: “For example, payers can directly and immediately settle payments with their payees via CBDC in a DLT network as opposed to going through via RTGS intermediaries, including banks, involving multiple debit and credit account entries. The infrastructure for these direct payments further prevents double-spending with temporal transaction orders in place.”

Mathee Supapongse, deputy governor of the BOT, was optimistic about central banks implementing emerging technologies like blockchain, claiming that the recent joint CBDC efforts by Hong Kong and Thailand’s central banks is “only the beginning”: “Though our Project Inthanon has come to the last phase, I believe that it is only the beginning of our next journey where central banks and relevant partners collaborate to tackle existing and incoming challenges, as well as enhance our cross-border funds transfer efficiency…just like the old saying “Going together, we go further.”

According to the joint statement, the BOT and the HKMA have agreed to further proceed with joint research in relevant areas.

The BOT and the HKMA are not the only banks that are working on cross-border payments projects based on blockchain technology. Earlier in January, SCB, Thailand’s oldest bank, partnered with Ripple to create a blockchain-based mobile app to provide instant and low-cost cross-border payments.

Meanwhile, the Bank of Japan aims to accelerate research on digital currencies in cooperation with foreign central banks, amid rapid changes in financial technologies, the Japan Times reported.

The Japanese central bank will study and analyze related technologies and the impacts of digital currencies on the economy, while eyeing the possibility of issuing its own digital currency in the future.

Wider use of digital currencies will enable low-cost and fast international cash transfers and payments.

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