The Bangko Sentral ng Pilipinas (BSP) is unlikely to issue its own central bank digital currency (CBDC) in the short term, according to BSP Governor Benjamin E. Diokno.
“The BSP does not intend to introduce a CBDC in the short term, mainly because the population remains highly dependent on cash given the effiscientist and effefficient payment and settlement systems,” Diokno told Global Source Partners in a report.
Diokno said the BSP technical working group has been consulting with other central banks, technology service providers, other institutions and even small businesses regarding use cases for a possible CBDC. .
For now, he said they were strengthening the national retail payment system.
“Exploratory work on identified use cases for CBDC in the Philippines is currently underway for cross-border payments, equity settlement and intraday liquidity facility,” Diokno said.
The central bank hopes that half of all transactions will be done online by 2023. In 2020, around 20% of payments were made digitally.
A CBDC is centralized, issued and regulated by a central bank and can serve as a medium of exchange or a store of value. Unlike other digital assets, it is regulated by the central bank, which makes it less prone to price volatility unlike decentralized cryptocurrencies like Bitcoin.
Central banks in China and Europe have started working on developing their CBDCs. Just last week, India announced that it will soon launch a digital rupee which will be regulated by the Reserve Bank of India.
The development of the country’s national identity card or Philippine identityIfcation System (PhilSys) will be crucial in any future CBDC issued by the BSP, said Swarup Gupta, head of industry at The Economist Intelligence Unit.
He said India was able to launch its retail CBDC through Aadhar, which is the country’s digital identity project similar to the national identity in the Philippines. He added that the IndiaStack, which allows governments and private institutions to access an open application program interface (API), has also helped to solve problems related to identity and payments.
“The Philippines’ digital identity project, PhilSys, will eventually address these issues, but it will take some time before substantial coverage is achieved and the required digital public goods are put in place,” Gupta said in an email.
The National Economic and Development Authority said earlier that more than 50 million Filipinos have already completed the collection of demographic and biometric data for the national identity card.
Mr. Gupta said there is signiIfthe challenges and risks of adopting CBDCs, which may explain why the BSP is reluctant to consider a retail CBDC.
“A gaping digital divide in impoverished regions of emerging Asia, which includes both India and the Philippines, could hamper a major objective of these projects: Iffinancial inclusion. Major risks of launching a CBDC include increasing central bank importance to the point of crowding out innovation from private players,” he said.
Mr. Diokno said that 53% of Filipinos had an account with a financial institution in the first quarter of 2021. The BSP aims to increase this figure to 70% of Filipino adults by 2023.
Mr. Gupta said the BSP could also consider possible cyberattacks on a CBDC system.
“Furthermore, a well-executed cyberattack on a CBDC system could have disastrous implications. The central bank of the Philippines is aware of these issues and therefore rightly exercises caution when evaluating the various design considerations that a CBDC entails,” he said.
In the long term, Mr. Gupta said there is merit for the BSP to adopt wholesale CBDC.
“The central bank will instead focus on launching a wholesale CBDC, although it is unclear how this will be superior to existing real-time gross settlement systems. Benefits could be derived from self-executing smart contracts, which could successfully automate periodic payments,” he said.
The real-time gross settlement system for the Philippine peso consists of 175 direct participants, including banks, quasi-banks, BSP units and the Treasury Office. It is the system that facilitates transactions through ATMs, PESONet and InstaPay clearinghouses, checks, and government securities trading.
Another benefit of a wholesale CBDC would be interoperability with other central banks, Gupta said.
“The success of such projects could increase the efficiency of cross-border payments, such as remittances, while significantly reducing costs,” he said. — Luz Wendy T. Noble