The State Bank of Vietnam is reportedly set to become the newest central bank to dig deeper into the feasibility and operation of central bank digital currencies (CBDCs).

The brief difference from some other countries is that it tests a digital currency that appears to be based on blockchain technology rather than a centralized protocol.

According to a July 3 newsletter for the English-language daily Vietnam News, Prime Minister Pham Minh Chinh announced the initiative as part of his broader e-government development strategy. The central bank is expected to work on the development and implementation of the pilot from 2021 to 2023.

The introduction of blockchain technology by Vietnamese politicians is fundamentally different from their widespread hostility towards the decentralized currencies that have permeated the underlying protocols. The country banned Bitcoin (BTC) as a form of payment in 2018, but retains the right to private investments in cryptocurrencies by individuals and companies.

The immediate ban followed an instruction to credit institutions to limit services to crypto-related activities in order to reduce the risk of money laundering. Despite these two steps, there is still no formal regulatory framework for crypto exchanges operating in the country.

Since the spring of 2020, this hostile, but relatively alien, approach has started to change. In May of the same year, the Vietnamese Ministry of Finance approved the establishment of a research group tasked with researching and making policy recommendations related to cryptocurrencies and digital assets. This group, to which the State Bank belongs, also includes the country’s Securities Commission, Department of Banking and Financial Institutions, General Department of Vietnam Customs, and others.

Huynh Phuoc Nghia, deputy director of the Innovation Institute of Ho Chi Minh City University of Economics (UEH), told reporters that the State Bank of Vietnam Countries, which recognize digital currencies, will help as cashless payments continue to increase in the country . According to Nghia, “digital currency is an inevitable trend” and running the pilot will help the government evaluate the pros and cons of different approaches and find the appropriate regulatory mechanism.

Related: Vietnam Ministry of Education records blockchain certificate

Another interviewee, Le Dat Chi, deputy dean of the UEH’s Faculty of Finance, stressed that quick action is required for the country to be competitive as the dynamic behind CBDCs continues to grow.

Vietnam News suggests that issuing a CBDC could be useful to smaller countries in a global system dominated by the US dollar and, to a lesser extent, the euro and yen. However, it not only calls for the acceleration of CBDC research and development, but also points out the potential risks to the country’s monetary and financial security. A representative from NextTech Group – a group of companies focused on digital commerce in Southeast Asia – said Vietnam needs to define an official definition for cryptocurrencies.

Before the government set up the research team in May 2020, Vietnamese police officers advised the public not to participate in cryptocurrency investment programs. In March of this year, the Vietnamese Ministry of Finance warned the public about the risks of cryptocurrency investments amid the industry’s still unregulated status in the country.