Phase 1
Motivation:
In August 2018, the Bank of Thailand (BOT) launched Project Inthanon, aiming to evaluate the potential and practical applications of Distributed Ledger Technology (DLT) within the realm of financial infrastructure. Through collaboration with prominent industry participants, Project Inthanon represented a significant step in advancing technological progress within the Thai financial domain. The initial phase of the project was focused on establishing the foundational payment structure. This included the creation of a Proof of Concept (PoC) for a DLT-based Real-Time Gross Settlement (RTGS) system, employing wholesale Central Bank Digital Currency (CBDC) for interbank settlements. Notably, a standout achievement was the development of an inventive GR architecture that incorporated Automated Liquidity Provision (ALP) functionality, successfully ensuring privacy and atomicity attributes.
Use-Cases:
- The decentralised RTGS for the interbank payment was chosen to be the first business case for the joint-learning initiative in
Design Considerations:
Solutions:
Corda was chosen as the platform for developing Project Inthanon’s proof-of-concept. The POC is built as a private and permissioned Corda network. Each authorised participant operates a Corda node on the network; in all, there are 9 nodes representing the BOT and each of the 8 participating banks. The key components for Corda’s architectural design for Phase I are as follows: Corda Distributed App (CorDApp), Network Map Service, Central Bank (BOT) Node, Participating Bank Node, Notary (Consensus Service).
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Phase 2
Motivations:
The objective is to build on the Phase 1 POC and augment it with additional functions to handle DvP settlement for interbank bond repo & trading, data reconciliation and handling of NR regulatory requirements. Outcomes from Phase 2 demonstrate the practicality of DLT at enabling transformative process improvement and technical feasibility of achieving DvP in real-time through an experimental MLSM.
UseCases:
- DvP for Interbank Repo & Trading of Bonds
- Third-Party Payment Integration & Regulatory Compliance
Solution:
The POC was built as a private and permissioned Corda network. Each authorised participant operates a Corda node on the network; in all, there are 9 nodes representing the BOT and each of the 8 participating banks. The network also operates a doorman service which provides network permission, and a single notary node. To reflect a security setup similar to reality, each participant node is placed behind the firewall and a connection is opened to the network.
The results obtained during Phase 2 highlighted the viability of employing smart contracts for automating various stages of the bond lifecycle and for achieving Delivery versus Payment (DvP) in interbank bond trading and repo transactions. The proficient utilization of smart contracts showcased their potential to significantly simplify operational processes and enhance overall efficiencies.
Additionally, the enhancements to the Real-Time Gross Settlement (RTGS) system’s ability to prevent fraud were notable. This was achieved through the establishment of a novel end-to-end workflow, enabling the validation of transactional details using external sources through integration points.
In the same vein, Phase 2 also effectively tested the use of smart contracts for ensuring regulatory compliance. This was exemplified by the implementation of the NRFS mechanism, which holds promise in potentially eliminating numerous manual operational procedures and empowering banks to more adeptly monitor limits associated with Non-Resident Baht Accounts (NRBA) and Non-Resident Baht Securities (NRBS).
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Phase 3
Motivations:
The Bank of Thailand’s Project Inthanon Phase III centered around enhancing the compatibility of ledgers to enable cross-border fund transfers, aiming to facilitate HKDTHB PvP (Payment versus Payment) transactions between banks in Hong Kong and Thailand. The project’s scope encompassed addressing regulatory and compliance issues related to both the Thai Baht (THB) and foreign currencies. The project involved a Proof of Concept (PoC) for cross-border fund transfers empowered by Distributed Ledger Technology (DLT), creating a seamless link between domestic and international payment networks. The primary goals included enhancing the efficiency of settlement, liquidity, and regulatory processes. The collaboration between central banks and financial institutions was facilitated through the DLT infrastructure.
Project LionRock unfolded in two consecutive phases. Phase A was dedicated to evaluating the potential advantages and obstacles associated with issuing Central Bank Digital Currency (CBDC) and examining the technical feasibility of utilizing DLT. This phase successfully demonstrated the secure interfacing of DLT-based CBDC with the Real-Time Gross Settlement (RTGS) system. It also indicated the possibility of extending access to central bank money for corporations without granting RTGS access. Notable benefits of DLT for CBDC encompassed traceable transactions, heightened security and resilience, and the capability for direct settlements in central bank money between customers. The phase also brought to light challenges related to scalability and privacy concerns.
Phase B of Project LionRock further evaluated the technical feasibility and suitability of implementing the lifecycle of Exchange Fund Bills and Notes (EFBN) as well as Hong Kong government bonds on the DLT network. This phase successfully demonstrated the feasibility of tokenizing EFBN and government bonds. Operational benefits were verified in automated intraday repurchase agreements, while hurdles emerged in executing specific corporate actions, such as coupon payments.
The PoC illustrated the potential of CBDC to simplify transactions by reducing intermediaries and settlement layers in contrast to conventional banking payment systems. For instance, individuals or entities making payments could directly settle with recipients through CBDC on a DLT network, bypassing intermediaries like banks and avoiding multiple debit and credit account entries in systems like RTGS. This direct payment infrastructure also safeguarded against double-spending through the implementation of chronological transaction orders.
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