The Bangko Sentral ng Pilipinas (BSP) is studying the e-krona of Sweden as prototype central bank digital currency (CBDC) on a wholesale level, part of its review under Project CBDCPh.

The pilot Project CBDCPh was launched last year to develop a wholesale CBDC in the country, as well as to review technologies for alternative payment instruments and digital currencies of other countries.

BSP Governor Eli M. Remolona said Sweden has made some advances in the wholesale CBDC space. He said, this is what the Philippines is also aiming at, to issue a wholesale CBDC rather than retail.

He said the BSP is looking at different experiences in other countries and Sweden has the more advanced technology. 

In Sweden, the Sveriges Riksbank or its central bank, prefers wholesale CBDC but the whole country is already digital on the retail side.

“It’s an active area for discussion, for comparing notes,” said Remolona. There are other notable CBDC pilots in Australia, China, India, Japan, Korea, and Thailand.

Presently, Riksbank’s e-krona which it refers to as “state money in digital form” is not yet publicly available since the central bank is still investigating its use. Similar with the BSP, Riksbank wants its CBDC to strengthen its own payments system as Sweden transitions from cash to digital cash.

Basically, a wholesale CBDC will reduce transaction costs, shorten processing times, and enhance the transparency of such transfers. 

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

As early as 2021, the BSP has made it known that they prefer wholesale CBDC over retail CBDC because the former will have a more significant contribution in addressing frictions on large cross-border foreign currency transfers. It will also help in the settlement of risk exposure from using commercial bank money in equities, and it allows an intraday liquidity facility.

In a 2022 report which was released in July this year, the BSP said it is expanding Project CBDCPh’s target use cases and “proof-of-concept” phase.

It is currently conducting proof-of-concept on different CBDC technologies. The next stage is that BSP will come up with a prototype testing.

The same report noted that target use cases will enable fund transfers across a limited number of financial institutions, potentially even during off-business hours or on a 24/7 basis.

Upon establishing the feasibility of a wholesale CBDC for inter-institutional fund transfers, the BSP stated that it will conduct pilot experiments on the relevant use cases for easing payment system gaps.

As of end-2022, the main objectives of the pilot project are: to have hands-on knowledge of the functionality, architecture, technology, and operational and organizational requirements of a CBDC; and to leverage methods to enhance existing payment systems.

Meanwhile, CBDCs can be an alternative payment instrument versus privately-issued cryptocurrency assets that may be used for money laundering, cybercrimes, and other unlawful activities, the report added.

In a previous interview with Bloomberg TV, Remolona said the digital world “is presenting some challenges” such as “causing losses in cryptocurrencies.”

“So far, this hasn’t directly affected the banking system but there are signs that things may become dicier in the next year or so,” he said in July.

The International Monetary Fund (IMF) has already recommended for BSP to conduct several phases and “extensive” pilot projects for CBDCs especially in cybersecurity issues.

In a November 2022 surveillance report on the Philippines, the IMF said that while the BSP charter, amended in 2019, does allow for the issuance of wholesale CBDC, the regulatory framework “may need to be revisited to ensure governance and financial stability risks are addressed.”