The Bangko Sentral ng Pilipinas (BSP) is currently testing three use cases of a future central bank digital currency (CBDC) including securities settlement and in managing intraday liquidity.
BSP Governor Benjamin E. Diokno said that “exploratory works” on the three identified use cases for CBDC in the Philippines “are currently being undertaken” for cross-border payments, settlement of equity securities, and intraday liquidity facility. The BSP started to analyze these use cases in the fourth quarter of 2021, Diokno said.
Diokno said previously that before issuing its own CBDC, the BSP needs to strengthen the domestic retail payment system and if a digital currency will add value to its existing real time, gross settlement system.
“The BSP continues to evaluate potential use cases for a CBDC,” he said in a Global Source Partners paper published on Feb. 3.
Diokno said in 2020, when he first openly discussed the eventuality of a CBDC, that the ongoing research, collaboration and testing being conducted by the BSP technical working group (TWG) on CBDCs will not likely result in a CDBC issuance in the next three to five years since a lot more has to be done, including shifting at least 50 percent of all payment transactions into digital.
“The BSP continues to engage in research, capacity building, establishment of networks and potential pilot implementation of a CBDC amid the high-speed digital transformation worldwide. However, the BSP has no plans to introduce a CBDC in the near term primarily because the population remains heavily cash reliant given the country's efficient and effective payment and settlement systems,” Diokno reiterated in the Global Source Partners paper.
The BSP’s TWG is currently consulting with other central banks particularly the Hong Kong Monetary Authority and the Monetary Authority of Singapore, and have collaborative experimentation with other central banks and financial institutions.
The BSP said it will take some time before the Philippines is ready for a CBDC since several issues need to be settled and addressed first, such as payments safety and efficiency.
It said in a paper, “Central Bank Digital Currency for the BSP” published in March last year, that it “needs to identify its primary motivation (or motivations) to explore the issuance of a CBDC. Once it has set down the motivation for issuing a CBDC, the BSP will decide which form of digital money it will adopt such as wholesale CBDC or retail CBDC and if it will be token-based or account-based.
Based on a Jan. 19 ASEAN+3 Macroeconomic Research Office’s (AMRO) analytical note on CBDCs, it said CBDCs do not have a one-size-fits-all solution and its adoption will depend on the environment of each economy or country.
“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,” said AMRO.
AMRO recommended further investigation on some key areas that are relevant to how CBDCs will impact financial systems in the region. These include implications for monetary policy, liquidity management, payment infrastructure, cross-border payments, financial system stability, regulatory changes, and the attendant spillovers within the region, it said.
The BSP is far from a pilot implementation stage since the TWG will conduct a more in-depth study of the CBDC projects conducted by other central banks in terms of timelines and potential costs, necessary human resources, and technological infrastructure such as software and hardware.
It will also continue to study the different technology platforms whether distributed or centralized, among others.
The BSP said a CBDC roadmap will provide a conceptual blueprint of its own digital currency, but they are not there yet and “still a long way to go” before issuing a CBDC.