Digitalization of Financial System in Cambodia

In Episode 80 of DBS Kopi Time, Serey Chea, Assistant Governor at the National Bank of Cambodia shared her views on the application of blockchain technology to Central Banks and talked about many aspects of Bakong, a Cambodian digital money system.

The National Bank of Cambodia is currently working on an digital money project Bakong, which it is developing jointly with Soramitsu, a Japanese blockchain technology company. According to Ms Chea, the trigger and the main purpose of Bakong is to improve financial inclusion — it is designed to connect mobile payment providers with the banking system. The implementation will lead to an interbank settlement system that potentially could remove the need for development of advanced Central Bank settlement systems, such as RTGS.

Still, she makes an argument that Bakong is different from CBDC since the digital money within it (not to interfere with digital currency or even cryptocurrency) is not the Central Bank’s liability. Instead, local banks exchange their paper money against the digital version and there will be no issuance of additional money by the Central Bank.

This bottom to top approach of the Cambodian Central Bank is not common — central banks of most countries go through a long period of research and testing for the design of their CBDCs. However, when many Cambodians remain without a bank account, and the problem associated with migrant workers’ transfers together with the high cost of banking services, the Cambodian Central Bank seems to have found a great way to lead the process. Ms Chea also shared that the government is considering issuing bonds on blockchain, which is another move forward in digitizing the State’s activities.

Another interesting point Serey Chea made was about the dollarization of Cambodia. After a long explanation on its roots, she seemed to try to justify it by citing the ease in which dollars are used. Nevertheless, she highlighted the Bakong app which provides an additional local currency account by default on activation and could potentially help Riel to win the “hearts” of Cambodians.

Also in the interview, Serey Chea briefly talked about her views on adaptation of blockchain technology for the needs of the Central Bank. In particular, she mentioned that permissioned and private design of the blockchain is required for Central Bank operations. While common in traditional banking industry, this statement does not adhere with the basic concepts of decentralized ledger tech.

Currently, Cambodia is not the only country that intends on digitizing its economy. Palau, a tiny island state, has already launched a blockchain-based IDs project together with Binance. Representatives of both countries highlighted that the size of their nations is an advantage when it comes to new technological projects, as they have the power to control the development and handle the scalability of their markets.