FOURTEEN Thai banks have come together to launch a scheme hailed as a world first in providing letters of guarantee (LGs) based on blockchain technology.
The Thailand Blockchain Community Initiative is aimed at reducing costs and increasing productivity for banks’ clients and the broader economy.
Aside from the 14 lenders, the initiative has the backing of three state enterprises and four large corporations.
They aim to upgrade businesses efficiency and competitiveness by adopting blockchain technology, which is best known for its role in underpinning the most widely used digital currency, bitcoin.
The Thailand Blockchain Community Initiative will initially focus on blockchain-based letters of guarantee. The participants in the scheme say this will lead to the full integration of the LG system - worth Bt1.35 trillion - into the era of the electronic documentation. Operating costs will be cut by half, they say.
The system is being tested in the Bank of Thailand’s regulatory sandbox. It is expected to have an interoperability launch in the third quarter of this year, according to the joint statement of the participants.
Bank of Thailand governor Veerathai Santiprabhob told a press conference announcing the initiative that the central bank is delighted to witness the setting up of Thailand Blockchain Community Initiative, which will be beneficial to the banking and broader business sectors as well as the Thai economy as a whole.
In particular, the adoption of technology with h potential technology such as blockchain “can change how we conduct businesses”, Veerathai said.
“Participating banks will be able to share this infrastructure and technology without having to fully invest in such development individually.
“This will as well help achieve higher efficiency and lower costs. For the business sector, the Thailand Blockchain Community Initiative will reduce the complexity of connecting to the same financial services provided by different banks, facilitate data verification on the same blockchain network, mitigate risks of counterfeiting, and increase timeliness as well as security.”
After implementing a pilot project for LGs, the central bank is working with banks to introduce blockchain-based bond issuance. Investors would receive the bonds within days, instead of the 15 days currently.
The next blockchain project, Veerathai said, would be for interbank settlement between the central bank and banks or a so-called wholesale central bank digital currency.
Predee Daochai, the chairman of the Thai Bankers’ Association, said the estimated value of LGs issued via the banking system in Thailand in 2017 may have topped Bt1.35 trillion, or more than 500,000 in volume, up 8 per cent over 2016.
Of this, LGs via the electronic system, or e-LGs, represent around 15-20 per cent of this issuance. Therefore, paper-based LGs still hold the lion’s share of issuance in the Thai economy. This presents as a burden for both issuing banks and businesses using LGs, in terms of costs and document management, Predee.
“Thailand is the first country in the world to implement blockchain-based LGs,” said Predee.
Large corporations participating in the Blockchain Community Initiative include PTT Global Chemical, PTT Polymer Marketing, IRPC, Siam Cement Group, the Electricity Generating Authority of Thailand, Metropolitan Electricity Authority and the Provincial Electricity Authority.
The new LG system is going to be popular, much like the PromptPay system for electronic payments that was launched last year, Predee said.