According to the Nikkei Asia news agency, the central bank of Laos will start a study for a digital state currency (CBDC) as early as this month, together with Japanese fintech company Soramitsu.
Laos and the Kip as digital currency
Soramitsu is a Japanese startup specializing in the fintech sector. Known for working with the National Bank of Cambodia to develop the Bakong digital payment platform, it has been working to help the country reduce its heavy dependence on the dollar.
The app has already been joined by about 200,000 users and can be used in about 2,000 shops across the country.
The specific aim of the Lao project would be to strengthen the local currency, the Kip, and would be an answer to the digital Yuan.
Laos is very dependent on China, being its second-largest trading partner after Thailand. According to OECD data, exports to China were worth nearly $1.9 billion in 2020, while imports were worth $1.87 billion.
According to some government sources, a state digital currency would have the function of collecting the necessary data to have the pulse of the economy and better understand the amount of money in circulation.
The CBDC could help these states, which are dependent on remittances from abroad, to save time and costs compared to cross-border money transfers.
The mBridge project for cross-border payments
This news comes just a few days after the Bank for International Settlements (BIS) announced plans for a digital currency for cross-border payments between four countries: Thailand, China, Hong Kong and the United Arab Emirates.
The project is expected to assess the speed and cost-effectiveness of a common digital currency for making money transfers between different countries.
These projects demonstrate the dynamism of the region in terms of digital currencies, following China’s announcement that it will soon implement its own digital yuan.
In many Asian countries, the yuan is said to be the currency of choice, replacing the heavy reliance on the US dollar after the great financial crisis of 2008.
It is therefore inevitable that a possible digital yuan will lead many neighbouring Asians to consider issuing their own digital state currency. The latest, before Laos, was Bhutan, which in recent days announced plans for its own digital state currency in collaboration with Ripple.
Laos recently authorized mining
Laos has shown increasing interest in cryptocurrencies in recent months. In mid-September, it granted six companies permission to mine cryptocurrencies, after China imposed a ban on this type of activity on its territory.
The high energy consumption required for mining would not be a big problem, considering the energy surplus that Laos has thanks to its large hydroelectric plants.
To many, this seemed a decisive change of pace after the Central Bank warned of the risks involved in the use and trading of cryptocurrencies in August. According to government sources, a project to regulate the trading and use of cryptocurrencies in the country is already under consideration, and could see the light of day by the end of the year.
This different attitude of the Laotian government towards cryptocurrencies is also said to be caused by the crisis in tourism, one of the country’s main sources of income. This problem is mainly caused by the Covid-19 pandemic, which has drastically reduced energy consumption. Cryptocurrencies could become a lucrative new business for one of the poorest economies on the planet.
However, the United States has warned of the great risks that the use of cryptocurrencies could bring. Especially in relation to money laundering by the country’s criminals, linked to drug trafficking, which is widespread in the area and whose activity is said to have soared during the pandemic.