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Manila Bulletin devider Business devider BSP wants wholesale digital currency

BSP wants wholesale digital currency

Published Apr 10, 2022 10:10 pm

The Bangko Sentral ng Pilipinas (BSP) is exploring use cases for its preferred wholesale central bank digital currency (CBDC) after taking into consideration its advantages based on the country’s digital payment system.

“The BSP’s initial assessment of the state of the national payment system and the recent progress towards broader payments digitalization showed that a wholesale CBDC may help address frictions that affect the efficiency and safety of wholesale payments involving cross-border fund transfers, equity securities transactions settlement and intraday liquidity facilities,” the BSP said in its 2021 annual report.

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The central bank said it will “proceed with the planning and conduct of pilot tests to explore the operational feasibility of these CBDC use cases in the country from 2022 onwards.”

The financial transactions of the BSP with banks using a wholesale CBDC appear readily feasible, said the BSP, while retail CBDCs would need a law or legislation. Retail CBDCs involve BSP directly distributing CBDC to the public.

Last November 2021, the BSP’s Monetary Board already noted the potential CBDC use cases in the country.

In March this year, BSP Governor Benjamin E. Diokno announced that the BSP has taken the next steps of initiating a pilot CBDC after two years of study, research and testing.

The BSP is expected to launch “Project CBDCPh” this quarter or in the third quarter at the latest.

Diokno said the BSP is targeting to roll-out Project CBDCPh in the near term to “build organizational capacity and hands-on knowledge of key aspects of CBDC that are relevant for a use case around addressing frictions in the national payment system.”

The BSP is already testing three use cases for CBDCs for cross-border payments, such as settlement of equity securities, and intraday liquidity facility. The BSP has started to analyze these use cases in the fourth quarter of 2021.

Based on a December 2021 analytical note by the ASEAN+3 Macroeconomic Research Office, there are three central banks with CBDCs for commercial use while 14 countries have completed pilot testing. Another 16 countries are in various stages of CBDC development or proof-of-concept stage and about 40 countries are currently undertaking research on CBDCs including the Philippines.

As for the Philippines’ own Project CBDCPh, the BSP formed what it called a “more collaborative and comprehensive investigation of CBDC’s nature and implications for the whole financial system” with an assessment of the country’s national payment system to identify use cases for a wholesale CDBC.

The BSP’s technical working group 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.

Based on Bank for International Settlements (BIS) definition, CBDCs “are a form of digital money, denominated in the national unit of account, which is a direct liability of the central bank.”

BIS said CBDCs are either wholesale or for financial intermediaries only or by the wider economy such as retail CBDCs.

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