Several central banks in the region are in various stages of collaboration and implementation of their own digital currencies and are considered in the “mature” stages, but for the rest such as the Philippines, more study is needed, according to ASEAN’s macroeconomic surveillance unit.
In ASEAN+3 Macroeconomic Research Office’s (AMRO) latest analytical note on central bank digital currency (CBCD), which was released on Wednesday, Jan. 19, AMRO said that despite some Asian countries’ successes in CBDC endeavours, its impact on the ASEAN+3 in terms of risks are still not fully threshed out.
“CBDCs could potentially have material impact on financial stability and monetary policy in the ASEAN+3 region. While CBDCs create opportunities for central banks to achieve their varying goals of efficiency, security, lower costs, and financial inclusion, the risks are not yet fully understood,” according to AMRO. ASEAN+3 include the 10 original members such as the Philippines, Singapore, Malaysia, Thailand, Indonesia, Vietnam, Brunei, Lao, Myanmar and Cambodia, plus Japan, China and South Korea.
“Going forward, key areas for further investigation that are relevant to the financial systems in the region would include the implications of CBDCs for monetary policy, liquidity management, payment infrastructure, cross-border payments, financial system stability, regulatory changes, and the attendant spillovers within the region,” said AMRO.
“In our view, the CBDC is an important development with regard to the future of money but the urgency of adoption will depend on the environment of each economy,” it added.
AMRO said many ASEAN+3 central banks have made “significant progress” on their CBDC projects. Citing a study by PricewaterhouseCoopers LLP or PwC, it noted that in Asia, countries such as Hong Kong (China), Japan, Singapore, and Thailand are among 10 nations with the “most mature wholesale CBDC projects globally”.
Others such as China, Cambodia, and Korea, meantime, are considered as mature in terms of retail CBDCs.
The Bangko Sentral ng Pilipinas (BSP), which is still in the study stage, has already expressed its interest in issuing retail CBDCs in the future, as soon as they are done in their analysis and evaluation.
Outside of the region, as of December 2021, AMRO listed the Bahamas, Nigeria, and the Eastern Caribbean as some of the early ones to launch CBDCs for commercial use.
In total, the research unit said 14 countries have launched or completed pilot testing of CBDCs while 16 are still in the development phase or proof-of-concept stage.
Based on the US think tank, Atlantic Council, there are 40 countries that are researching CBDCs as of end-2021. The BSP is part of this group.
“There is no single overarching objective that a majority of central banks is trying to achieve. We look at the key goals and objectives stated for CBDC projects that have passed the research stage, that is, proof-of-concept, pilot, and launched CBDCs, and the most commonly mentioned include increases in efficiency, robust and secure systems, modernization or digitalization, efficient cross border transfers, lower costs, and financial inclusion,” said AMRO.
“While existing digital payment systems do provide many of these benefits, they are maintained and operated by private institutions. The CBDC, on the other hand, is a liability of the central bank. Therefore, it is a more reliable, harder to counterfeit, and hence safer digital payment alternative. Based on the design, it can also provide instant settlement finality,” it added.
For the Asian market, AMRO said CBDC “is an important, developing area toward increased financial digitalization, but design and adoption will be strongly influenced by country specific issues.”
It concluded that the CBDC is “not a one-size-fits-all solution, and hence monetary authorities have invested significant time and resources to identify key issues that need addressing, design the CBDC itself, and conduct elaborate pilots before implementation.”
AMRO said CBDC projects could be classified as either retail or wholesale. It explained that retail CBDCs “have seen greater interest from central banks” including the BSP’s.
It noted that about 70 percent of all CBDC projects globally are interested in retail CBDCs. “It is worth highlighting that some of the regional central banks have made significant strides in CBDC projects and have ventured into both retail and wholesale CBDCs to investigate potential benefits. It is not unlikely that countries may implement separate retail and wholesale solutions in a way that is complementary,” said AMRO.
Financial inclusion and maintaining monetary sovereignty are some of the key goals that are exclusively served by retail CBDC projects, it added. Since retail CBDCs cater to retail transactions, it “may be used by individuals, corporations, and small businesses as a medium of exchange and, possibly, as a store of value.”
AMRO said all central banks in the region have confirmed their role as the sole issuer of their respective CBDCs in both pilots and early research. By definition, CBDCs would form a part of central bank money and almost all central banks have reserved the issuance rights of CBDCs for themselves, it said.
Last June 2020, the BSP created a Technical Working Group (TWG) as initial research on CBDCs and it released a more comprehensive study in March 2021.
The BSP's "Central Bank Digital Currency for the BSP" research note listed two key considerations on CBDC issuance which is one, if the BSP has the legal mandate and regulation to set it up and two, implications on the country’s fight against “dirty money” or money laundering.
The BSP is also keen on further assessing a CBDC’s potential impact on its central bank functions such as monetary policy transmission, and in ensuring financial stability as well as an efficient and safe payment and settlement system.
But more importantly, the BSP is assessing a CBDC’s legal implications and if the National Payment Systems Act which granted BSP an expanded authority to own and operate a payment system, is enough in terms of legal framework.
The BSP said it will continue in-depth research especially how other countries apply it on payments systems and to have a deeper understanding of privately-issued digital currencies.
BSP Governor Benjamin E. Diokno said earlier that the Philippines is not likely to have a CBDC within his term which ends in mid-2023.
Diokno said the issuance of CBDCs will depend on a lot of things such as how far developed is the domestic financial market and the demand for CBDCs. Other factors should also be at play before a CBDC is out there such as cash usage and the public acceptance and use of privately-issued digital currencies.
What the BSP know for now, based on the first TWG report, is that they have a starting point to a future Philippine digital currency. But, the central bank needs a more involved and a “more exhaustive investigation” of a CBDC’s nature and implications. “(We need more) research for measures to address the risks,” said the BSP earlier.