By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) has started to look into central bank-issued digital currencies (CBDCs) as a means for retail payments or merely as alternative to cash, among other things.
In a recent gathering of correspondent banks – these are banks that conduct transactions for other banks – BSP Governor Nestor A. Espenilla Jr. said the BSP has been studying CBDCs as well as private digital currencies. “Presently, we are looking into the issue of CBDCs and what it means for the supply of credit and the impact on the financial system,” he said.
This was the next step for the BSP after issuing regulations to cover virtual currency (VC) exchange and while there are no rules yet on initial coin offerings or ICOs, these are under close watch, too.
Espenilla said some banks or financial institutions are preparing VCs of their own and this calls for the BSP’s assessment of CBDCs. He said the BSP is currently collaborating with other central banks “for a harmonized regulatory approach” on VC and ICOs.
“We are also working closely with BSFIs (BSP-supervised financial institutions) on their respective plans to launch private digital currencies and other pioneering VC technologies,” he added.
The BSP since February last year registers VC Exchanges as “companies or businesses engaged in changing VCs into fiat currency (and vice versa)” and the act of converting VCs into Philippine money can facilitate payments and remittances. As such, VC Exchanges are registered as remittance and transfer companies in the BSP. The BSP is also crafting additional “responsive” regulations on digital technology that includes cryptocurrency.
Espenilla admitted that review and study will take time and that the BSP is carefully monitoring new technologies for the “overall safety and integrity of the financial system.”
He added that with the rise of VC trading activities and development of a digital ecosystem, the BSP has been focusing for years on cybersecurity. “There is also a need to address cybersecurity on a broader scope. This is a must for a digital, financial ecosystem to thrive.”
Espenilla said VC trading poses an immediate threat to the corresponding business in particular since the peer-to-peer transfer of value such as remittances does not have to go through intermediaries or central counterparties.
As for CBDCs, central banks across the globe have been watching its progression. Based on a paper released earlier by the Bank for International Settlements (BIS), a CBDC is “potentially a new form of digital central bank money that can be distinguished from reserves or settlement balances held by commercial banks at central banks.”
Similar with most regulators, the BSP has started to analyze this form of digital money which would be legal tender unlike VCs, for payment systems or as alternative to cash. According to the BIS paper, central banks considering CBDC would have to have in place strong anti-money laundering and counter-terrorism financing rules as well as the tax policy and authority based on existing laws to produce CBDC.