The National Bank of Cambodia (NBC) hopes to launch the testing phase of a closed loop blockchain-based technology by the fourth quarter of this year, a technology that if proven successful would greatly enhance the central bank’s ability to facilitate and monitor interbank lending and transactions, the director-general of the NBC has confirmed.
The central bank’s decision to study the implementation of blockchain technology was first announced last April when the NBC signed a partnership agreement with Japan’s Soramitsu Co., a company that uses open-development software known as Hyperledger Iroha. The product is backed by US-based company Linux Foundation, which is distributing the ledger technology program.
A distributed ledger, also known as a blockchain, provides greater verification for transmitting digital assets and currencies. And by being based on open-source software, the technology can also prevent against cyber attacks by creating a shared ledger safeguard mechanism that is recorded by all individuals or institutions that access the network.
While the technology also allows for the use of cryptocurrencies, such as bitcoin, NBC director-general Chea Serey was quick to point out that the technology would not be used to support any type of cryptocurrency at this time. Rather, it would be used to reduce costs associated with interbank lending.
“We expect the new technology to provide smooth, efficient, safe and affordable interbank transactions which will ultimately benefit end users,” Serey told Post Supplement in an email. “At this stage we will focus on the operational functionality of the system, but we believe the system can further be customized with application development to benefit the [central] bank’s monetary policy, including the use of the local currency.”
She added that while the NBC is not aiming to be a leader or pioneer in the adoption of blockchain technology, it is exploring every possible strategy to give it greater control over the Kingdom’s monetary policy that is heavily constrained by the dependence on the US dollar.
“[This] technology moves very fast and we are open to explore any platforms suitable for Cambodia’s situation,” she said, adding that the Hyperledger Iroha cashless system seems to be the right one at this early stage.
“A cashless system is less costly and more transparent for the whole economy,” she said. “This has always been on our agenda, but we needed time to study the different platforms available [before making a decision].”
Martin Kendrik, the founder of the Cambodian Cryptocurrency, Bitcoin and Blockchain Community, said that there are a myriad of reasons why central banks are exploring the use of this technology.
One of the reasons, he explained, is that if regulatory bodies do not adopt blockchain technology, it threatens to replace the traditional banking industry.
“Banks can either try to kill blockchain, which they did try to do, but have now realised they can’t kill it so are desperately trying to catch up and convert everything onto blockchain,” he said.
Another reason, he said, was that the current debt-based economics of the global economy can collapse the global financial system, and central banks are trying to find ways to protect themselves from instability.
Kendrik advocated that it should pursue blockchain technology beyond the NBC’s current scope and adopt cryptocurrencies because it would allow the Kingdom to insulate itself from external economic shocks.
Regardless of the apocalyptic forecasts associated with cryptocurrency enthusiasts, Kendrik said that Cambodia was well-positioned for the use of blockchain technology given that it is already using a multi-currency system.
However, Rithy Ray, an independent IT and payment consultant, said that the use of a blockchain could help financial institutions to lower high operating costs.
“While financial institutions would have to invest in this technology, with the NBC being the first mover it is a very positive sign that they have the intention to actually see how it can be used to cut costs,” he said.
“The commercial implementation of blockchain technology has proven in the end to be a cost savings investment,” he added, explaining that it would allow financial institutions to better monitor know-your-customer operations.
“For example it could allow financial institutions to confirm their customers’ identities and know how many current loans they have taken out to help reduce risk of over-indebtedness,” he said.
Nevertheless, he added that because the technology decentralizes operations, it could be a tough sell for the government as it would have to give up some of its regulatory authority to oversee financial operations.
Brenn Hill, CTO of Peerity, an upcoming blockchain powered social and activity network, said that while the technology is always difficult to implement on a cultural, legal, and institutional level, “strong government and private support for a blockchain and interoperability standard is key.”
Additionally, he said that with blockchains being “faster, easier, cheaper, and impossible to hack” it also makes financial reporting more transparent and easier to track.
“So not only is blockchain technology good for technical reasons, it is also capable in helping to fight financial corruption,” he said.