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The Laotian central bank and the Soramitsu firm signed an MOU to launch the project to expand financial inclusivity and provide sellers with faster settlement.

Japanese financial software firm Soramitsu has announced the signing of a memorandum of understanding with the Bank of the Lao People’s Democratic Republic Payment Systems Department on the launch of a proof-of-concept project for a Laotian central bank digital currency (CBDC). Under the agreement, a digital form of the Lao kip, called the DLak, would launch Feb. 7.

According to an explanatory video, the central bank would provide DLak to commercial banks in exchange for fiat currency, and the user would exchange fiat for DLak from the commercial bank. The user would then make purchases from participating sellers using a QR code and an app.

The DLak would be instantly converted to fiat by a commercial bank, making it possible for sellers to receive payment in real time. Previously, a digital transaction in Laos took up to a month to clear.

BREAKING: The Bank of the #Lao PDR Payment Systems Department and #SORAMITSU Co., Ltd have signed an MOU for a #CBDC Proof of Concept ⛩ #DLak #LaoPDR pic.twitter.com/12S74IIvm4
— ソラミツ SORAMITSU | 7 YEARS 2016-2023 (@soramitsu_co) February 6, 2023

Apparently, a user would not be required to have a bank account to transact with DLak. Financial inclusion for people without bank accounts is one of the stated objected of the project. According to Nikkei Asia, around 70% of Laotians do not have bank accounts.

The DLak project was modelled on the Cambodian Bakong system that was launched in collaboration with Soramitsu in 2020. That system was not described as a CBDC. The Bakong system garnered 200,000 users within months and began experiments with cross-border transactions in 2021.

Simplifying remittances from abroad is also a goal of the DLak. In addition:

“CBDC is a way to advance the sophistication of payment systems, as well as ensuring economic security through a local currency that does not depend on other countries.”

According to Nikkei Asia, the Bakong and DLak would help maintain the stability of their respective countries’ currencies while trading with China, which has introduced a digital yuan. Soramitsu stated that it is also conducting CBDC research in Fiji, Vietnam and the Philippines.

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CBDC

Soramitsu, the firm that helped build Cambodia’s Bakong digital payments system, will work with the Laos government to research what a Laotian CBDC might look like.

Laos has become the latest nation to begin exploring a central bank digital currency (CBDC), announcing upcoming research on the subject in partnership with Japanese distributed ledger technology (DLT) firm Soramitsu.

According to an Oct. 3 report from Nikkei Asia, the project is expected to begin this month and follows the signing of a memorandum of understanding between Laos’ central bank and the Japan International Cooperation Agency to study the development of CBDC.

The study will assess the operations of banks and other financial intermediaries within the financial system, in addition to assessing the broader transactional needs of the Laotian public

The report states that a CBDC would offer Laotian policymakers better economic data, and could pave the way for cross-border CBDC-based settlements with its neighbor and second-largest trading partner, China.

Soramitsu worked with Cambodia to develop its Bakong digital payment system, a DLT-based payments network that was designed to reduce the country’s reliance on U.S. dollars for domestic trade.

The Bakong app has been downloaded roughly 200,000 times since its launch in October 2020 and is currently supported by approximately 2,000 stores.

The Laos government’s move to research a CBDC appears to have come amid a push to explore more permissive digital asset regulation.

On Sept. 11, the administration officially approved a public-private pilot exploring cryptocurrency mining and trading in a bid to capitalize on China’s latest crackdown on the mining sector and the resulting exodus of industrial-scale miners.

Six companies including banks and construction firms have been granted permission to mine crypto assets as part of the project.

Several government ministries led by the Ministry of Technology and Communications in partnership with the Bank of Laos and national power utility Electricite du Laos have also begun working toward drafting regulations governing the use of digital assets in Laos.

However, the country’s central bank issued a notice warning the public against the risks associated with unregulated crypto assets including Bitcoin and Ethereum.

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