Japanese fintech developer Soramitsu has joined an effort to build a cross-border payment system for Asian countries involving Cambodia’s central bank digital currency, the core of a growing international network.
Soramitsu has supported the issuance of Asian CBDCs Bakong in Cambodia and Laos’ Digital Lao Kip. Bakong is already used for QR code-based digital payments between Cambodia and Malaysia, Thailand and Vietnam. As of the end of 2022, it had 8.5 million users and handled around USD 15 billion in payments.
The company is working to enable similar cross-border payments for India, China and Laos, and hopes to bring Japan into this network.
Soramitsu first will establish a Japanese exchange for stablecoins, which are cryptocurrencies pegged to legal tender. If a consumer in Thailand wanted to make a QR code-based payment to buy something from a Japanese e-commerce site, for example, the payment would be sent to the exchange as a dollar-denominated Bakong and converted to a yen-denominated stablecoin.
Low transaction fees are one feature of this framework. Stablecoins can be transferred without going through existing interbank payment networks, avoiding fees paid to intermediary banks.
The fee for the stablecoin exchange is undecided, but it will be in the tens of yen per transaction, less than one-tenth the cost of a typical cross-border transfer. (JPY 10 equals 7 cents).
Cryptocurrencies like stablecoins are based on blockchains, distributed ledgers that make irreversible records of each transaction.
Stablecoins issued on the same blockchain are simple to exchange from a technological standpoint, but exchanging stablecoins issued on different blockchains requires technology to execute transactions on multiple blockchains simultaneously.
Soramitsu is working with Japan’s Mitsubishi UFJ Trust and Banking and other partners to create the necessary exchange infrastructure.
Changes to Japan’s payment law took effect in June, making it possible for banks to issue stablecoins. Local startup JPYC and regional banks aim to issue yen-denominated stablecoins, some of which are expected to debut by 2024.
To build the cross-border payment network, Soramitsu formed a project team with Tokyo-based digital services company Vivit and the Tama University Center for Rule-making Strategies. It is looking to partner with major e-commerce sites.
The team hopes to use CBDCs and stablecoins for connecting Japanese small and midsize companies directly with individuals and businesses in Southeast Asia. Smartphone ownership in the region is high, while few have bank accounts and credit cards.
The Bank for International Settlements, in a 2021 report on CBDC payment trials, said cross-border payments that previously took three to five days could be completed in a few seconds. Payments using Bakong and the stablecoin exchange will be capable of the same speed, according to Soramitsu.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.