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Cambodia’s adoption of tokenised deposits reflects a broader trend—where regulators seek to harness the benefits of digital finance without destabilising the traditional banking system
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Central banks worldwide have been actively exploring innovations in financial infrastructure, with blockchain technology emerging as a key area of experimentation. While a comprehensive, long-term evaluation is necessary to assess the viability and systemic implications of such developments, Cambodia’s experience offers valuable insights. As policymakers and regulators in various jurisdictions seek to modernise their payment ecosystems, the Cambodian case provides a critical reference point for understanding the practical implementation, operational challenges, and broader economic impact of blockchain-enabled financial systems.
The National Bank of Cambodia’s latest annual report provides an interesting perspective on the rapid evolution of digital finance, particularly through the expansion of the Bakong payment system. In 2024 alone, Bakong facilitated transactions worth US$ 104.81 billion—an extraordinary 330 percent of Cambodia’s GDP. This figure not only underscores the system’s growing importance but also signals a fundamental shift in the country’s financial architecture, where digital payments are increasingly complimenting traditional banking channels.
Bakong balances are fully backed by deposits at commercial banks, positioning it not as an alternative form of sovereign money but as an efficient clearing and settlement mechanism.
A common misconception is that Bakong functions as a central bank digital currency (CBDC), likely due to its association with the National Bank of Cambodia. However, a more precise characterisation would be that of a tokenised deposit system. Unlike a conventional CBDC, Bakong balances are fully backed by deposits at commercial banks, positioning it not as an alternative form of sovereign money but as an efficient clearing and settlement mechanism. This distinction is critical, as it suggests that the system enhances, rather than displaces, existing financial institutions.
A closer look at its structure reveals a telling asymmetry. A single payment provider may operate a small number of bank accounts while supporting thousands of digital wallets. As a result, the total number of Bakong-linked bank accounts—642,500—remains relatively modest, even as the number of wallets in circulation has surged to 30 million. This divergence suggests that while the formal banking infrastructure remains intact, consumer behaviour is shifting toward digital wallets as the preferred mode of financial interaction.
Merchant adoption has also been significant, with 4.5 million vendors integrating Bakong transactions through a universal QR code system that consolidates multiple payment methods. This rapid adoption raises important questions about the trajectory of digital finance: Are we witnessing the early stages of a broader transition away from traditional banking towards decentralised, technology-driven financial models? Or is this simply a case of the financial system adapting to new efficiencies while retaining its core institutional structures?
Emerging economies are embracing digital payments with a keen focus on both inclusion and resilience, ensuring that innovation enhances financial access without compromising stability.
The key lies in how regulators and policymakers navigate this shift. Emerging economies are embracing digital payments with a keen focus on both inclusion and resilience, ensuring that innovation enhances financial access without compromising stability. By learning from past challenges and proactively shaping regulatory frameworks, these economies are not just adapting—they are leading the way in building a more efficient, secure, and inclusive financial future.
The Cambodian Riel (KHR) is the official currency of Cambodia, issued and regulated by the National Bank of Cambodia (NBC). It remains the primary medium of exchange, particularly in rural areas, though the US dollar continues to play a significant role in the country’s economy. The Riel exists in physical form—banknotes and coins—and serves as the legal tender for domestic transactions.
Bakong, by contrast, is not a currency but a blockchain-based digital payment system developed by NBC. It serves as a central platform that facilitates digital transactions in both KHR and USD. By enabling seamless, cashless payments between individuals, businesses, and financial institutions, Bakong strengthens the efficiency of the payment infrastructure. Through mobile applications, users can transfer funds securely and instantly, expanding access to financial services beyond traditional banking channels.
While some have characterised Bakong as a CBDC, this is not entirely accurate. Unlike a CBDC, which typically functions as a direct liability of the central bank, Bakong does not replace the Riel. Instead, it operates as an innovative settlement mechanism that enhances financial inclusion by allowing even unbanked populations to participate in digital transactions.
It remains the primary medium of exchange, particularly in rural areas, though the US dollar continues to play a significant role in the country’s economy.
The Riel remains Cambodia’s physical currency, while Bakong represents a crucial step toward modernising the country’s financial infrastructure. Rather than displacing existing monetary frameworks, Bakong leverages technology to bridge gaps in financial access, ensuring that digital transactions become more inclusive, efficient, and secure.
The Bakong payment system in Cambodia represents a significant step in the evolution of digital finance, though it is often misunderstood. While frequently described as a CBDC, Bakong is more accurately a tokenised deposit system—an innovation that bridges the gap between traditional banking and digital payments. This distinction is not just technical but has broader implications for financial stability, monetary policy, and the trajectory of digital transformation in emerging markets.
Tokenised deposits are essentially digital representations of commercial bank deposits within a blockchain-based or digital ledger system. Unlike CBDCs, which are liabilities of the central bank, these deposits remain fully backed by funds held at commercial banks. In effect, this is not a "new" form of money but a more efficient and secure means of transacting with existing commercial bank money. The key advantage is that it retains the stability of the traditional banking system while delivering the benefits of digital payments.
Bakong follows this model by enabling commercial banks to issue tokenised versions of customer deposits, which can then be used within the ecosystem for payments and transfers. This ensures that banks remain central to the financial system while benefiting from the operational efficiency of digital transactions.
Bakong follows this model by enabling commercial banks to issue tokenised versions of customer deposits, which can then be used within the ecosystem for payments and transfers.
One of the key risks associated with CBDCs is the potential for bank disintermediation. If depositors move their funds en masse from commercial banks to CBDCs, believing them to be safer, banks could face liquidity shortages, limiting their ability to extend credit and invest in the economy. By contrast, tokenised deposits mitigate this risk by keeping funds within the commercial banking system, ensuring that banks continue to play their essential role in financial intermediation.
In many emerging markets, central banks may face institutional constraints that limit their capacity to implement and manage full-scale CBDCs. A tokenised deposit framework offers a pragmatic alternative, enabling central banks to retain regulatory oversight while utilising the established infrastructure of commercial banks. This approach mitigates operational risks and reduces the complexities associated with direct central bank involvement in digital currency issuance and management.
Furthermore, the Bakong system, functioning as an extension of the existing banking network, facilitates seamless integration with conventional financial services, including lending, remittances, and payment processing. By preserving these linkages, the transition to digital payments occurs without disrupting established banking relationships, ensuring continuity for both businesses and consumers while enhancing financial inclusion and payment efficiency.
The Bakong system supports transactions in both Riel and US dollars, offering a crucial tool in the central bank’s broader strategy to strengthen the role of its domestic currency while modernising payments.
While Bakong primarily facilitates domestic transactions, its infrastructure could be leveraged to improve cross-border payments, reducing settlement times and transaction costs—an area of growing interest for many economies seeking greater financial integration. Cambodia presents a unique case. As a highly dollarised economy, NBC is working to increase the circulation and usage of the local currency, the Cambodian Riel. The Bakong system supports transactions in both Riel and US dollars, offering a crucial tool in the central bank’s broader strategy to strengthen the role of its domestic currency while modernising payments.
Ultimately, Cambodia’s adoption of tokenised deposits reflects a broader trend—where regulators seek to harness the benefits of digital finance without destabilising the traditional banking system. By maintaining commercial bank intermediation, Bakong strikes a balance between innovation and financial stability, ensuring that digital transformation unfolds without introducing systemic risks. As other economies evaluate digital currency solutions, this hybrid model may well serve as a blueprint for striking the right balance between technological advancement and financial resilience.
Sauradeep Bag is an Associate Fellow at the Observer Research Foundation.
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Sauradeep is an Associate Fellow at the Centre for Security, Strategy, and Technology at the Observer Research Foundation. His experience spans the startup ecosystem, impact ...
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