By Melissa Luz T. Lopez
THE BANGKO SENTRAL ng Pilipinas (BSP) is looking into the possibility of issuing digital currencies at a time of increasing use, although industry experts cautioned that doing so could disrupt monetary policy operations.
BSP Governor Nestor A. Espenilla, Jr. mentioned in a recent speech that monetary authorities have been studying the emergence of central bank-issued digital currencies (CBDCs) in other countries and its potential impact on the local financial system. However, they are not yet keen on pursuing this track for the Philippines.
In particular, Mr. Espenilla said they are checking CBDCs in terms of “what it means for the supply of credit and the impact on the financial system,” noting that they are giving “thorough consideration” on the matter.
Also called digital fiat currency, CBDCs would address questions of legitimacy as these would be guaranteed by the central bank and is acknowledged as real money, although used online.
Countries like Ecuador, Senegal, Venezuela and the Marshall Islands have moved towards issuing cryptocurrencies as a legal form of payment.
Two industry experts echoed the need for a comprehensive study on using virtual currencies as legal tender in the Philippines, in the context of managing liquidity and interest rates.
Cecilia Mueller-Chen, head of the Switzerland-based Crypto Valley Association, said monetary authorities need to spell out clear regulations for the use of blockchain technology as well as digital currencies as a first step.
“I think different central banks have different velocities or speed in which they have assessed whether they can issue some type of e-currency that will supplement any type of legally-binding tender,” Ms. Mueller-Chen said in an interview during her recent visit to Manila.
“It’s actually quite a complex issue because there are issues about how you conduct monetary policy… When you issue e-currency that could possibly be traded or use in some kind of payments system, we need to track it as well,” she explained.
“The question is do you supplant M1 money supply in terms of cash? How do you control the interest rates off of an e-currency, would you tie it to actual cash? How do you verify it?”
Justo A. Ortiz, president of the Blockchain Association of the Philippines, noted that the Philippines could benefit from wider use of cryptocurrencies but flagged its potential impact on market yields.
“It’s definitely feasible, but our central bank needs to believe… Our economic circumstance might be different — these… decisions need a lot of research because it needs to be sort of positive or additive to their (BSP) mandate,” Mr. Ortiz said.
“The Bank of Canada thought it would improve (the conduct of monetary policy) because it would reduce cash. Our central bank also has that goal that they want to digitize, move transactions electronically,” he added.
“Like everything… it has to be very thoroughly examined and has to be thoroughly researched supporting it.”
The BSP has moved to regulate virtual currency exchanges, or businesses that convert peso values into e-currency before being traded online via a blockchain platform.
At the same time, the Securities and Exchange Commission has released draft guidelines for initial coin offerings, which will cover firms that issue tokens or digital currencies to raise capital.
Industry players have called for “legal and regulatory clarity” in order to allow blockchain-based companies and transactions to flourish, at a time the BSP is promoting the shift to digital payments.