Digitalization is undoubtedly transforming the economy by reducing cash transactions and giving rise to alternative electronic currency systems. Central banks have suffered a lot coming up with a fitting answer for cryptocurrencies and other digital solutions. So far, we’ve seen some solid efforts, but nothing that would challenge the heavyweight champions like Bitcoin.
China’s e-CNY is undergoing pilot programs, while the European Central Bank announced its intention to pursue a digital euro by launching a two-year investigation into the potential benefits and regulatory challenges of a CBDC. It is safe to predict that within a decade or two, the world will slowly shift toward digital currencies. What does it mean for the future of the country’s banking sector?
Bakong as One of the Pioneers
Cambodia’s answer to modern financial trends was Bakong, launched back in 2020. It was a somewhat unfortunate launch, because some media around the world presented it as a CBDC, which is far from true. National Bank of Cambodia describes it as an e-wallet and money transfer platform intended for banks, microfinance institutions, PSPs and consumers to transact with each other without needing a bank account.
In these four years, the platform has been enabled for around 60% of the country’s population, and has opened the way for many new digital products not possible before. In other words, Bakong is doing what any good digital platform should be doing – creating new financial possibilities, but this time under the control of a central bank.
Despite being built on the DLT (distributed ledger technology), Bakong is not a CBDC, as many initially assumed when its launch was announced. Instead, it’s a peer-to-peer mobile app with enabled QR code transactions. The challenges for the National Bank of Cambodia are presented in the form of a very fragmented financial sector. Banks, MFIs and PSPs function independently. The idea was to create a shared platform so they could interact on a common ground. Bakong solved the problem. For the most part.
Modern Trends Require Modern Solutions
Cambodia has a high internet and smartphone penetration rate. This brings plenty of options to the table. Consumers have access to new platforms, not available before. Not only domestic ones but also global ones. With that, new preferences develop, and it’s easier to follow trends. Entertainment is one of those dynamic sectors that often seek good integration with financial services. In Cambodia, it’s shown through the increasing demand for casino games, among them is Dragon Tiger game online as well as other similar titles. Thanks to apps like Bakong, online platforms can easily integrate a way of payment familiar to a wide consumer base. Also, as games like Dragon Tiger continue to gain popularity, opportunities for banks will emerge, and it will be in their interest to integrate with online gaming platforms. By providing digital currency payment gateways, banks can tap into new revenue streams while expanding the digital economy.
What About the Digital Currencies?
The importance of Bakong is not only in its pioneering nature. Cambodia is a heavily “dollarized” country, meaning the economy is dependent on the US dollar, and people often must convert to riel, losing some value. Creating a strong riel, backed with an equally strong and modern digital platform, is what Cambodia’s officials realized a long time ago. Governor Serey’s strategy to “de-dollarize” the country was in part tied to Bakong’s feature where remittances can be made in Khmer riel only. Not in dollars. Compared to cash, where dollars dominate, transactions dominate on Bakong. It’s safe to predict that further adoption and integration of Bakong is going to continue in a way that’s least disrupting for the existing financial system, while also helping in the country’s effort to introduce riel as a currency of choice.
As for digital currencies, Chea Serey, assistant governor and director general of NBC says Cambodia currently doesn’t have plans for one, as there are no real use cases for CBDC. Cambodia is one of the countries where fintechs significantly contributed with innovation to the financial system, but that hasn’t included any digital currencies so far. Chea Serey said Cambodia was inspired by payment systems from Kenya, the Philippines, and South Africa when developing Bakong. Perhaps the country will follow their lead in terms of digital currency adoption as well when the time right time comes.
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