Philippines’ foray into having its own central bank digital currency (CBDC) is close to becoming a reality with the selection of Hyperledger Fabric as the distributed ledger technology (DLT) for its wholesale pilot project, the Bangko Sentral ng Pilipinas announced. 

This is also aligned with the projection that a BSP-issued digital currency is likely to happen within the term of incumbent BSP Governor Eli M. Remolona, who started his six-year term on July 3 this year.

Remolona on Thursday, Sept. 7, announced that the BSP has selected the Hyperledger Fabric as the DLT for its wholesale CBDC pilot project.

He also said they have renamed the pilot project “Project CBDCPh” to “Project Agila” referencing the BSP’s logo featuring the world famous Philippine Eagle.

The objective of Project Agila is to communicate and familiarize both the BSP and participating financial institutions on the planned CBDC technology solutions which will enhance the country’s large-value payment system.

“By the end of Project Agila, the pilot participants are expected to have a clearer understanding of CBDC technology and assess the capability of wholesale CBDCs to foster advancements in the large-value payment systemm,” said Remolona.

For the first time, the BSP revealed a clearer timeframe of when to launch the CBDC.

According to the new BSP chief, “the results of the assessment are seen to guide the BSP and the industry on a possible launch of wholesale CBDCs in the Philippines.”

He also said that BSP “will use learnings from the project as input for crafting BSP’s wholesale CBDC project roadmap,” with the “goal of further enhancing the efficiency and safety of the national payment system.”

The BSP has collaborated with the International Monetary Fund and the Bank for International Settlements Innovation Hub on the technical, risk management, and governance aspects of the pilot CBDC project.

As described by the BSP, CBDCs are a form of digital money denominated in the national unit of account and are direct liabilities of the central bank. Wholesale CBDCs may be issued to commercial banks and other financial institutions to settle interbank payments, securities transactions, and cross-border payments, among others, it added.

Both the BSP and an initial seven participating financial institutions which are mostly banks, selected the Hyperledger Fabric as DLT for its wholesale CBDC pilot project. This particular DLT or technology allows data and transactions to be recorded, shared, and synchronized across a distributed network of different participants, said the BSP.

“This would be a useful mechanism for testing Project Agila's use case scenario of enabling inter-institutional fund transfers even during off-business hours (i.e., evenings, weekends, and holidays) or when PhilPaSSplus is unavailable,” it added.

Hyperledger Fabric was selected through a rigorous process that included system demonstrations, walkthrough procedures, and a scoring system, covering the systems' access, security, 24/7 availability, interoperability, and programmability.

Participating financial institutions in this project include: BDO Unibank Inc.; China Banking Corp.; Land Bank of the Philippines; Rizal Commercial Banking Corporation; Union Bank of the Philippines; and Maya Philippines Inc.

Some financial institutions will be included for “succeeding stages” such as Citibank N. A. Manila, China Bank Savings, Wealth Development Bank Corporation, and SeaBank Philippines Inc.

“After the selection of the technology for the project, participants will test the use of wholesale CBDC technology alongside PhilPaSSplus in a sandbox environment,” said the BSP.

Remolona said last month that BSP has been studying the e-krona of Sweden as prototype CDBC on a wholesale level. Sweden has made some advances in the wholesale CBDC space. The Sveriges Riksbank or its central bank, prefers wholesale CBDC and refers to its CBDC as “state money in digital form” but it is not yet publicly available.

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.

For now, BSP’s proof-of-concept phase on different CBDC technologies is done with the selection of the DLT.

Soon after, the conduct of prototype testing is expected to run for several months.

In a 2022 report, the BSP said it is expanding its CBDC technology testing and emerging use case evaluation to improve the safety and efficiency of the national payment system.

These 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 will conduct pilot experiments on the relevant use cases for easing payment system gaps.