Bank of the Lao PDR and Tokyo-based Soramitsu signed a memorandum of understanding Monday to begin a proof of concept.
Soramitsu helped Cambodia launch its digital currency, called Bakong, in October 2020. The Laotian central bank will use a modified version of this system to generate digital currency, which will be distributed to consumers via commercial banks. Consumers will test using the currency to pay for purchases at stores.
Laos also will explore digital cross-border transactions with Cambodia. Though other countries have issued central bank digital currencies, like Bakong or Nigeria’s eNaira, transactions involving two different CBDCs are not widely available. Laos and Cambodia hope to make their digital currencies more attractive by jointly developing a cross-border payments system.
Vientiane sees digital currency as a way to make financial services more accessible. Around 70% of the Laotian population has no bank account. A digital currency would let people pay at the store or transfer money by scanning a QR code on their smartphones, regardless of whether they have a bank account. It could reduce the cost of remittances from workers overseas.
Laos and Cambodia also see CBDCs as key to their economic security.
As their trade with China expands, Laos and Cambodia consider stable exchange rates with the yuan as a priority. The People’s Bank of China already has issued the digital yuan on a trial basis, and the two Southeast Asian countries want to expand the advantages of using their home currencies before Beijing starts tackling cross-border settlements.
Elsewhere in the region, Vietnam and the Philippines are conducting research on CBDCs, while Fiji and other Pacific island nations have expressed interest in the concept.
Soramitsu aims to create an international settlement network that connects digital currencies from these countries. Such networks are more valuable the more currencies they involve.
Efficiency in cross-border transactions is a major reason countries are interested in central bank digital currency, a 2021 report by the Bank for International Settlements said. The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, has successfully experimented with interlinking CBDCs across 18 different organisations, including central banks.