Digital peso in the Philippines: Ready or not?

By Lourdes O. Pilar, Researcher

CHEAPER cross-border remittances, greater financial inclusion, enhanced liquidity management, reduced settlement risks, and financial stability support are the many promises of central bank digital currency (CBDC) to the country’s financial landscape. But would a digital peso work in the Philippine financial system?

A CBDC is a form of digital currency issued by a country’s central bank. It was like cryptocurrencies, except that its value is fixed by the central bank and is equivalent to the country’s fiat currency.

Last year, the country’s central bank completed its testing phase for Project Agila, its prototype wholesale CBDC.

Rizal Commercial Banking Corp. (RCBC) views the potential adoption of a CBDC as a strategic move toward modernizing the Philippine financial ecosystem.

“CBDCs provide a secure, efficient, and transparent alternative to physical cash, enabling real-time, government-backed digital settlements that enhance the integrity of payments nationwide,” said Angelito M. Villanueva, RCBC executive vice-president and chief innovation and inclusion officer.

China Banking Corp. (Chinabank) recognizes that the adoption of wholesale CBDC technology can bring significant benefits to the banking system.

“Through Project Agila, we have observed that wholesale CBDC (wCBDC) can facilitate 24/7 domestic fund transfers, leading to enhanced efficiency in interbank settlements and faster turnaround times for financial transactions,” said Delfin Jay M. Sabido IX, Chinabank chief innovation and transformation officer.

There are two types of CBDC, wholesale and retail. Financial institutions are the primary users of wholesale CBDCs in which the BSP is introducing in the country, while retail CBDC are for consumers’ and businesses’ use.

Financial institutions included in the pilot study see CBDCs as a powerful enabler and have the potential to promote broader financial inclusion.

“Designed with offline capabilities, CBDCs can reach unbanked populations in geographically isolated and disadvantaged areas. Even without internet access, individuals can transact digitally using feature phones or offline wallets via SIM toolkit, Bluetooth, or QR-based solutions,” Mr. Villanueva of RCBC said.

Mr. Villanueva also added that CBDCs also enable direct government-to-person disbursements, bypassing the need for a bank account and ensuring aid reaches the intended recipients fast and securely.

“Underbanked and underserved Filipinos can indirectly benefit from wholesale CBDCs through micro, small, and medium enterprises, cooperatives, lending institutions, and the government sector. These entities can leverage the efficiencies and capabilities of wholesale CBDCs to provide better financial services and support to their communities,” said Mr. Sabido of Chinabank.

HOW IT WORKS
According to Mr. Villanueva, the BSP selected Hyperledger Fabric, a distributed ledger technology, as the foundation for pilot testing due to its ability to record, synchronize, and share data across a network of participants. This makes it ideal for off-hours inter-institutional fund transfers — such as during evenings, weekends, holidays, or when the PhilPaSSplus system is offline.

The selection was based on its strengths in security, system access, 24/7 availability, interoperability, and programmability — all critical to building a resilient CBDC infrastructure.

RCBC said that digital access alone isn’t enough. In areas with limited or no internet connectivity, hybrid solutions will be essential. This includes offline-capable CBDC transactions and mobile-based technologies like SIM toolkit integration.

Equally important is the human element. As the country undergoes digital transformation, trusted community intermediaries are critical to bridge the gap.

The project aims to assess the technology’s viability and its potential to improve financial operations, but some advantages and disadvantages were experienced by banks in the implementation of CBDC during pilot testing.

RCBC’s participation in the Project Agila pilot presents a unique opportunity to explore the real-world functionality and potential of a wCBDC. The pilot demonstrated key benefits, including faster settlement speeds, reduced reliance on clearing intermediaries, and greater transaction transparency.

“However, the pilot also surfaced important challenges, such as the need to integrate CBDC systems with legacy banking infrastructure, which often lacks built-in interoperability,” said Mr. Villanueva.

Broad adoption will require extensive user education and strategic change management to avoid fragmentation and ensure alignment across financial institutions, Mr. Villanueva added.

Chinabank experienced several positive outcomes, including the ability to conduct programmable transactions tailored to specific systems using smart contracts, faster interbank settlements, and expanded flexibility in fund management.

“These developments have the potential to significantly improve transaction efficiency and operational risk management,” said Mr. Sabido

He added that areas for further study may include the need for robust cybersecurity measures to protect against potential threats, the requirement for comprehensive staff training to ensure smooth adoption, and the necessity to update existing regulatory frameworks to accommodate new technological advancements.

READY OR NOT?
As one of the Philippines’ most digitally progressive banks, RCBC is strongly positioned to lead in the CBDC and digital finance space.

“RCBC has built a proven track record in delivering innovative, inclusive, and impactful financial technologies. We’ve shown that innovation and inclusion can — and must — go hand in hand. We have launched groundbreaking platforms designed to bring banking closer to every Filipino,” Mr. Villanueva said.

Chinabank’s participation in Project Agila has enabled it to thoroughly assess their technical, operational, and strategic capabilities in adopting wCBDC technology.

“Chinabank continues to monitor developments closely and will carefully evaluate future requirements, opportunities, and challenges as the project progresses. We remain committed to adapting and evolving our systems to ensure readiness for innovative financial technologies,” Mr. Sabido said.

The BSP said that the project will likely be launched by 2029, still within the six-year term of BSP Governor Eli M. Remolona, Jr.