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April 12, 2024

Philippines eyes wholesale central bank digital currency

Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr., in a recent discussion with business editors, revealed the Philippines’ intention to introduce a central bank digital currency (CBDC) within the next two years.

Drawing inspiration from other regulatory peers who have developed similar digital assets to counter volatile cryptocurrencies, the BSP aims to offer an alternative payment system and store of value.

Contrary to retail CBDC, the BSP’s focus lies on wholesale CBDC for the local market, as disclosed by Remolona. The decision excludes the utilization of blockchain or distributed ledger technology due to past unsatisfactory experiences of other central banks.

Remolona said that under the wholesale CBDC model, banks will serve as the sole counterparties, facilitating retail transactions. The BSP anticipates enhanced efficiency, safety, and reliability in both domestic and cross-border payments through wholesale CBDC, providing banks an additional avenue, apart from reserves, for real-time interbank payments and settlements.

Remolona, however, underscored the BSP’s awareness of the risks associated with retail CBDC, including potential disintermediation and exacerbation of financial stress. Thus, the BSP has resolved to limit its focus solely to wholesale CBDC.

Acknowledging the feasibility of implementing wholesale CBDC within his tenure, Remolona cited successful precedents from other central banks that the BSP aims to replicate. The BSP aims to leverage the Philippine Payment and Settlement System, owned and operated by the central bank, as the underlying technology for its CBDC.

Wholesale CBDC initiatives by other central banks, such as the Bank of Canada, European Central Bank, and Bank of Japan have demonstrated the potential to mitigate fraud and cyber threats, according to research from the Bank for International Settlements (BIS). However, the efficacy of these systems compared to existing infrastructure remains a subject of ongoing evaluation.