Central Bank Digital Currencies (CBDCs) is a growing trend at the moment, with several banks around the world either piloting a CBDC project or researching its use cases. The movement that was led by China has grown to become the next big change in the world economy.
The central banks that are developing CBDCs are trying to tweak it according to the needs of the respective nations. While some CBDCs are being designed to replace fiat, others would just be a fiat-backed mode of payments. Basically every CBDC would serve different purposes.
Similarly, The National Bank of Cambodia has just revealed the technicalities of its upcoming blockchain-based payments system dubbed ‘Project Bakong.’
According to the project whitepaper published on 18 June, Project Bakong is being defined as a quasi-digital currency that is just a technological enhancement of the nation’s official currency, the Khmer Riel.
First announced in 2017, The National Bank of Cambodia has been working with distributed ledger tech startup Soramitsu to develop Bakong.
As The Daily Chain reported earlier this year, Users would be able to use the “quasi-form” platform for everyday payments via their mobile devices. The initiative is expected to support the government’s push to introduce QR-based transactions throughout the country.
Per the whitepaper, one of the primary motives behind the development of this project is to challenge the growing use of the dollar in Cambodia, something which has been going on for decades.
The central bank believes that Bakong will help turn the tides in favor of the local currency by inducing Cambodians to pay using QR via a mobile application. The transactions powered by a Hyperledger Iroha blockchain that facilitates real-time fund transfers between e-wallets integrated directly with the user’s bank accounts.
As per the Whitepaper, the system is a permissioned blockchain that functions in between Bakong and traditional accounts, record transactions on a distributed ledger, reach consensus via the block voting hash-based “Yet Another Consensus” algorithm, and process transactions in five seconds or less.
“Transaction throughput is between 1,000 and 2,000 transactions per second. This suggests that there is potential for this project to scale.”
The bank added that the system’s peer-to-peer nature removes the inefficiencies of centralized models without costing users anything to transact.
“Since banks and individual users are now brought into one DLT platform both banks and users no longer face interconnectivity and interoperability problems,” the central bank said.
Not a CBDC
One thing to be noted is that officials involved with the project have been hesitant towards labeling Project Bakong as CBDC and instead terms it as a blockchain payment system. Users need to load their e-wallets with Riel before being able to initiate a transaction, something that is not similar to a natively digital CBDC.
The whitepaper notes that while developed nations are addressing concerns regarding declining cash usage with CBDCs, developing nations like Cambodia, find CBDCs a way to promote financial inclusion, improve inefficient payment systems and even reduce poverty by opening access.
The bank expects the young and tech-savvy population of Cambodia to boost Bakong adoption. Lately, the nation has seen a 645 rise in e-wallet use, amounting to a record 5.22 million in 2019.
Furthermore, the mass adoption of Bakong is also expected to provide more control over Cambodia’s monetary policy by breaking the dollar’s decade-long local hold. Last month, the central bank announced its plan to discontinue $1, $2 and $5 banknotes by the end of August.
As of now, it is still unclear when Project Bakong will launch, with the whitepaper stating an “early 2020” release.