BSP to launch digital currency pilot project

THE 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-value financial transactions among selected financial institutions.

“The pilot project covers the experimentation of the CBDC’s use to transfer large-value financial transactions on a 24 [hours] by 7 [days] basis, across a limited number of financial institutions but possibly covering both banks and nonbank institutions,” BSP Governor Benjamin E. Diokno said in his speech at the Alliance for Financial Inclusion Policymakers’ Roundtable at the 2022 International Monetary Fund-World Bank Spring Meetings held on Tuesday.

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

He said wholesale CBDCs may have value in addressing some pain points, particularly in large cross-border foreign currency transfers done through the national payment system.

“We believe that we need to address this issue by reducing transaction costs, shortening processing times, and enhancing the transparency of such transfers,” Mr. Diokno said.

“Second is the settlement risk exposure arising from the use of commercial bank money in our equities market. We intend to mitigate this risk with CBDC, being a central bank money,” he added.

The BSP governor said wholesale CBDCs may also ease challenges related to the intraday liquidity facility which is not yet automated end-to-end.

The central bank said the pilot project will develop its capacity in operationalizing CBDCs. The project covers areas including policy and regulatory considerations, technological infrastructure, governance and organizational requirements, legal matters, payment and settlement models, reconciliation procedures, and risk management.

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

The BSP chose to focus on the wholesale aspect of CBDCs as it assessed that it will have bigger impact compared with retail use cases.

“There is minimal value added of the use of retail CBDC in the Philippines in the short term given the progress in our widespread implementation of retail payment digitalization and financial inclusion reforms,” Mr. Diokno said.

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

The BSP has previously said it sees opportunities from CBDCs in terms of additional options for monetary policy action, boosting competition and innovation among financial industry players, as well as broader financial inclusion. — Luz Wendy T. Noble