Laos Launches Digital Currency Trial

Laos has successfully trialed a digital currency prototype—the Digital Lao Kip—in cooperation with Japanese fintech company SORAMITSU.

The central bank of Laos, in cooperation with Japanese fintech company SORAMITSU, have successfully trialed a digital currency prototype – the Digital Lao Kip. The digital currency utilizes a block chain system developed by SORAMITSU with the aim to increase financial inclusion among the unbanked population in Laos.

SORAMITSU had previously successfully collaborated with the National Bank of Cambodia to launch Cambodia’s first digital currency, the Bakong, in 2020. Since its launch, Bakong has some 8.5 million users and recorded a transaction volume of approximately US$15 billion. It has also enabled Cambodian users to pay for products and services using the QR digital payment in Cambodia as well as with other countries in the region.

Financial inclusion and the unbanked population in Laos

Around 70 percent of the Laos population of just over 7 million do not have a bank account with cash continuing to be the norm for transacting, holding, and transferring funds. The digital currency will allow people to pay or transfer money through the QR code regardless of whether they own a bank account. It would also reduce the cost of remittances from abroad—remittances accounted for two percent of Laos’s GDP in 2021, amounting to US$435 million and thus is an important source of income for the economy.

Transforming Laos’ digital economy

The COVID-19 pandemic prompted many countries in Southeast Asia to embark on digitalization, resulting in the swift growth of e-commerce and financial services. However, Laos was unable to fully capitalize on this trend due to poor investments in digital infrastructure. A report conducted by the Center for Strategic and International Studies noted that in 2020, only 43 percent of Laos’s population had access to the internet, compared to the average 70 percent in the rest of the region.

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Further, many Laotians cannot afford the high cost of internet, which on average costs US$53 per month compared to US$33.17 in neighboring Cambodia.

Through digital tools such as the Digital Lao Kip, Laos can help improve the digitalization of local businesses, particularly SMEs, which dominate the economy. Moreover, if Laos can connect its digital currency with China, Cambodia, and other countries in the region, it will increase its cross-border settlements and improve trade. Vietnam and the Philippines are also conducting research on the potential of central bank digital currencies.

Source: IMF e-Library, FinTech Notes 2022, 009; 10.5089/9798400221521.063.A001

Source: IMF e-Library, FinTech Notes 2022, 009; 10.5089/9798400221521.063.A001

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