Bakong system blazes digital-money trail

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NBC assistant governor Chea Serey has said that Bakong enables interoperability between banks and financial institutions, making digital payments easier, safer, more efficient and more cost-effective. Hean Rangsey

Cambodia, along with China and South Korea, has among the 10 most mature retail central bank digital currencies (CBDC). The Kingdom’s Bakong system presents a real-world example of private distributed ledger technology (DLT) deployment in payment infrastructure, ASEAN Plus Three reported on January 19.

The organisation said there has been an “immense interest” in CBDC projects around the world, noting that the Bahamas, Nigeria, and the Eastern Caribbean Central Bank have launched such digital fiat currencies.

 

As of last month, “14 countries have launched or completed pilot testing of CBDCs, 16 are in stages of development or proof-of-concept stage, and another 40 countries are conducting research on the product”, the report said, citing US think tank Atlantic Council.

It also noted that many ASEAN Plus Three central banks have made “significant progress” in the area.

Additionally, Hong Kong, “Japan, Singapore and Thailand are considered to have among the 10 most mature wholesale CBDC projects globally”, the report said, referencing London-based PricewaterhouseCoopers (PwC).

“The Bakong payment system of Cambodia provides a real-life case of deploying private DLT in payment infrastructure, although the project is not a CBDC system because no digital native money is involved.

“The technology has provided a platform for connecting all financial institutions and payment service providers, and enabled real-time transactions amongst participants in a decentralised manner,” ASEAN Plus Three said.

“The usage of DLT in the project has achieved important features, such as transaction finality and scalability, with transaction output of up to 2,000 transactions per second and less than five seconds in execution time,” it said, citing the National Bank of Cambodia (NBC).

 

“In the system, participating institutions act as both, an on boarding channel for the end-users to enter the system, and as extra decentralised nodes that increase the system’s resilience. The project was officially launched in October 2020,” it added.

The NBC has partnered with local banks to operate Bakong and boost adoption, leading the currency to reach 7.9 million Cambodians by November – close to half of the Kingdom’s estimated 16 million population – directly or through apps offered by partner lenders, Nikkei Asia reported.

Since its inception, about 6.8 million transactions had been made through Bakong as of November, clocking in at around $2.9 billion.

NBC assistant governor Chea Serey has said that Bakong enables interoperability between banks and financial institutions, making digital payments easier, safer, more efficient and more cost-effective.

She told Nikkei: “This interoperability between different players in the financial system would not only create added value to end-users in terms of the services but also help bridge the [gap between] banked and unbanked [and] rural and urban, thus creating social cohesion.”

“This is particularly noticeable among the migrant workers and students who leave their home villages to work or study in the urban areas and need financial connection with their family.”

Nikkei on January 4 announced that Bakong had won one of the Awards for Excellence in the 2021 Nikkei Superior Products and Services Awards “for its innovative technology and impact on the country’s economic and social development”.