Soramitsu develops blockchain solutions primarily based on Hyperledger Iroha, which they architected internally and contributed to the The Linux Foundation at the end of 2016. We have covered the company previously here. Soramitsu has worked with the National Bank of Cambodia (NBC) to develop a digital currency, Bakong, and an associated payment system.
Developing countries like Cambodia are in an advantageous position to apply new technologies as they can leapfrog generations of inventions that have been deployed in more advanced countries, and simultaneously learn form the mistakes made. In Cambodia, while only 20–30% of the population have a bank account, the mobile phone penetration rate is 150%. Taking advantage of the latter, and using blockchain technology with NBC as the main administrator, it is possible to connect the whole country with a nationwide electronic payment system. If you register with any participating bank’s mobile wallet app, it will also automatically open a bank account. Since most banks take part in the system, it also strengthens central bank monitoring and supervision over a wide range of transactions.
Previously, Cambodia had a turbulent history, and US dollars were used as a means of payment, rather than Riel, the local currency. However, over the last ten years, Cambodia has had a low inflation rate, and the Riel/USD exchange rate has been stable. The economic growth rate is at around 7%, and the same level of growth is expected over the next few years. Nevertheless, the people continue to use the dollar. While many of the citizens said they were proud of having their own currency, the lack of a shift from using the US dollar was due to long-term lifestyle habits and awareness.
These habits are actually very hard to break. If trust in the Riel, its stability, or strength is the issue, the means to improve it are well understood. When this becomes a problem of consciousness, customs and national psychology, it is a much tougher task. If the government forces use of the Riel, it will not have a positive effect. So the government calls on the people to promote the daily use of Riel. It is important that the citizens voluntarily adopt their own currency. Since many prices have still been displayed in USD, the government has launched an initiative to price goods in Riel, and also pay civil servants in their own currency. The transition will take time, but the public awareness is gradually changing.
The Cambodian government has banned any virtual currency transactions. The NBC continues to alert the public to be cautious about cryptocurrency information and is strengthening monitoring to prevent fraudulent transactions and scams. At the same time, Facebook has proposed Libra. It seems that Facebook wants to position Libra as an international currency. That is not realistic. When another currency is used for settlement on a daily basis at the same time as the home currency, the country has various difficulties in maintaining its own monetary policy. This has been demonstrated by the dual use of US dollar and Riel in Cambodia.
Cambodia does not reject all digital currencies. In fact, the NBC began operating a payment system based on blockchain technology using the digital currency “Bakong” developed jointly with the Japanese FinTech company Soramitsu this year. Central banks in many major countries, including the Bank of Japan, are researching payment systems using blockchain technology, but Cambodia might just be the first central bank globally to introduce it.
There were many questions, such as whether a small country like Cambodia could use blockchain technology or if it could respond when a problem occurred. In developed countries such as Japan, the existing system is already functioning very well, and even if research on new technology is advanced, the adoption of it easily will hinder the operation of the current system. Cambodia did not have such infrastructure, so it introduced the new technology to drive change. If successful, everything becomes efficient. What if it fails? Just go back and try again.
The above is an abbreviated version of an interview with Serey Chea, Director General at the National Bank of Cambodia that appeared first in The Asahi Shimbun.
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