BSP will launch a digital currency pilot project

BANGKO SENTRAL ng Pilipinas (BSP) is currently working on a pilot project that will test the use of wholesale central bank digital currency (CBDC) for large-scale financial transactions among selected financial institutions.

“The pilot project covers testing the use of CBDC to transfer large-scale financial transactions to 24. [hours] By 7 [days] Basically, it covers a limited number of financial institutions but probably covers both banks and non-banking institutions, ”said BSP Governor Benjamin E. Diocono made the remarks at the Alliance for Financial Inclusion Policymakers Roundtable at the 2022 International Monetary Fund-World Bank Spring Meeting on Tuesday.

Project CBDCPH is a major step for the country’s central bank and finance industry to “better understand the opportunities and risks of wholesale CBDCs,” Mr Diokno said.

He said the wholesale CBDC could have value in resolving some of the pain issues, especially in the case of large cross-border foreign exchange transfers made through the national payment system.

“We believe we need to address this issue by reducing transaction costs, shortening processing time and increasing the transparency of such transfers,” said Mr Diocono.

“The second is the settlement risk exposure arising from the use of commercial bank funds in our equity market. We want to reduce this risk with CBDC as it is central bank money, ”he added.

The BSP governor said that wholesale CBDCs could also ease the challenges related to intra-liquidity facilities which are not yet automated from end to end.

The central bank said the pilot project would increase its capacity to launch CBDC. The project covers areas including policy and regulatory considerations, technical infrastructure, governance and organizational requirements, legal issues, payment and settlement models, reconciliation procedures, and risk management.

External advisers from multilateral organizations and international standard-setting organizations have also been tapped for the project.

The BSP chose to focus on the wholesale aspects of the CBDC because it assessed that it would have a greater impact than in the case of retail use.

“In the short term, the use of retail CBDCs in the Philippines has added minimal value to the progress of the comprehensive implementation of our retail payment digitization and fiFinancial inclusion reform, “said Mr Diokno.

He has become more open to exploring CBDCs, contrary to earlier statements that the central bank is not in a hurry to implement CBDCs.

The BSP has previously said it sees opportunities from the CBDC in terms of additional options for monetary policy activities, including competition and innovation among players in the financial industry, as well as greater financial inclusion. – Loose Wendy T. Nobel