After three years of development, the National Bank of Cambodia has revealed the technical details of its upcoming blockchain-based payments system dubbed ‘Project Bakong’ this month. Cambodia’s central bank began developing Project Bakong since 2017, and is seen as a high-tech relaunch of the Khmer Riel, which is the kingdom of Cambodia’s official currency but is significantly lesser used by the people in favor of the US dollar, according to the recently published whitepaper.
The National Bank of Cambodia (NBC) has been exploring blockchain and decentralized ledger technology as safer and more resilient alternative payments systems over the last few years. Permissioned blockchains are being increasingly explored by governments as a means to introduce a central bank digital currency (CBDC) which in many ways is the opposite of the decentralized, permission-less cryptocurrencies like Bitcoin that are more open systems that can lead to intense speculative value fluctuations. In contrast, Project Bakong will be a closed system that will be backed by the nation’s banks and financial regulatory authorities. However, unlike more notable CBDCs currently being carried out by other governments such as China’s Digital Yuan project, Project Bakong is not a natively-digital currency.
Instead, users need to load Khmer Riel into their Bakong accounts, to be exchanged in transactions over the system. NBC instead hopes that Bakong will give competition to the usage of the US dollar that is so prevalent, and make the local economy less reliant on the dollar. With the support of 11 banks already with more expected to join, the whitepaper says Project Bakong looks to allow the economy to transition to a real-time funds transfer system instead, including allowing interbank transfers. As the whitepaper states, “The implementation of Bakong would connect all financial institutions and payment service providers under a single payment platform which will allow for fund transfers to be processed on a real-time basis without the need of a centralized clearinghouse.”
In addition, Bakong will also serve as a peer-to-peer (P2P) platform including retail payments and a variety of transaction types. The system will leverage QR technology on mobile-based platforms, making it easier to access for Cambodians. The NBC claims that Bakong’s P2P nature eliminates a lot of the inefficiencies of the centralized clearinghouse models, without costing users anything to transact. Cambodia has a demographically young and increasingly tech-savvy population, according to the paper, and financial transactions are being carried out electronically more than ever, with e-wallet accounts in the country increasing by a massive 64% in 2019 to a record 5.22 million accounts.
The NBC refers to Project Bakong in the whitepaper as a blockchain payments system as opposed to a CBDC, and says that more developed nations are looking to CBDCs to deal with their population’s lessening use of cash. The central bank contends that for developing countries like Cambodia, a national digital payment system can promote financial inclusion to various levels of society including those below the poverty line, while also helping to improve upon scattered inefficient payment systems.