The Philippines is poised to make a significant stride in the world of digital finance as its central bank, the Bangko Sentral ng Pilipinas (BSP), prepares to launch a wholesale central bank digital currency (CBDC) by 2029. This move comes amidst a global trend of central banks exploring the potential of CBDCs to enhance digital currency payment systems, combat the volatility of cryptocurrencies, and provide an alternative means of payment and asset storage. The benefits of CBDC adoption are numerous, including increased efficiency, security, and financial inclusion.
BSP’s Wholesale CBDC Approach
The BSP has taken a strategic approach to its CBDC development, focusing on a wholesale model rather than a retail-oriented one. Governor Eli Remolona Jr. has emphasized that the central bank’s CBDC will not utilize blockchain or distributed ledger technology (DLT), a decision that sets it apart from the approaches taken by other central banks. This wholesale CBDC model aligns with the CBDC meaning and CBDC definition, which refers to a digital form of central bank money that is used for interbank settlements and other wholesale transactions.
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Leveraging Existing Payment Infrastructure
Instead, the BSP plans to integrate its CBDC with the Philippine Payment and Settlement System (PhilPaSSplus), the country’s real-time gross settlement system owned and operated by the central bank. This integration will allow the CBDC to complement the existing cash-based payment system, offering banks and financial institutions an additional avenue to deposit funds with the BSP and engage in real-time interbank transactions and settlements. By leveraging the existing infrastructure, the BSP aims to enhance payment efficiency and settlement finality.
Prioritizing Efficiency, Security, and Resilience
The primary objectives behind the BSP’s wholesale CBDC are to enhance the efficiency, security, and resilience of both domestic and cross-border payments. By limiting the CBDC’s use to licensed banks and financial intermediaries, the central bank aims to streamline large-scale transactions, including interbank transfers, securities transactions, and cross-border payments. This approach prioritizes financial stability and consumer protection while promoting financial inclusion through the use of digital assets.
Project Agila: BSP’s CBDC Exploration
The BSP’s CBDC journey began in 2021 under the leadership of former Governor Benjamin Diokno. The central bank launched Project Agila, a two-phase CBDC exploration initiative, to investigate the potential of tokenized fiat currencies. This project aligns with the growing interest in CBDCs worldwide, as evidenced by recent CBDC news and developments such as the US CBDC exploration, digital dollar executive order, and discussions surrounding government cryptocurrency.
Initial Pilot Phase
In the initial pilot phase, the BSP selected Hyperledger Fabric as the underlying technology for its CBDC project, known as Project CBDCPh. Seven banks participated in this proof-of-concept stage, providing valuable insights and feedback to the central bank. This phase focused on testing the feasibility and potential benefits of wholesale CBDCs in the Philippine context.
Rebranding and Expansion
Building on the learnings from the initial pilot, the BSP rebranded the project to Project Agila in September 2023. This expanded initiative aims to explore the use of CBDC technology in streamlining interbank, securities, and cross-border transactions. The rebranding reflects the BSP’s commitment to driving digital innovation in the monetary system and promoting the development of a robust digital economy.
Inspiration from Global CBDC Initiatives
The BSP has expressed a keen interest in learning from the experiences of other central banks that have already made strides in the CBDC domain. Governor Remolona specifically highlighted the examples of Sveriges Riksbank’s e-krona and the People’s Bank of China’s (PBoC) digital yuan project. These initiatives provide valuable insights into the potential impact of CBDCs on monetary systems and payment platforms.
PBoC’s Digital Yuan
The PBoC’s digital yuan, also known as the e-CNY, has been in the testing phase for domestic retail payments in 26 Chinese cities. Remolona noted that the PBoC is “almost done” with the development of the digital yuan, and the BSP intends to learn from this experience. The digital yuan project offers valuable lessons in terms of digital identity, liquidity provision, and the integration of CBDCs with existing payment platforms.
Conclusion
The Philippines’ central bank is poised to make a significant leap forward in the digital finance landscape with its planned launch of a wholesale CBDC by 2029. This strategic move, which eschews the use of blockchain technology in favor of integrating with the country’s existing payment infrastructure, aims to enhance the efficiency, security, and resilience of both domestic and cross-border transactions.
As the BSP navigates the complexities of CBDC development, it draws inspiration from the experiences of other central banks, while also exploring the potential of nationally-backed stablecoins. The successful implementation of the wholesale CBDC and the seamless integration of digital and traditional forms of the Philippine peso will be a testament to the country’s commitment to embracing the digital future of finance.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice. Investing in cryptocurrencies involves risks, and readers should conduct their own research and consult with financial advisors before making investment decisions. Hash Herald is not responsible for any profits or losses in the process.
