BSP ramps up pilot test of digital currency

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is ramping up the pilot test of a wholesale central bank digital currency (CBDC) as part of efforts to promote the stability of the country’s payment system.

Dubbed Project CBDCPh, the pilot will test the use of CBDCs for large-value financial transactions on a 24/7 basis across a limited number of financial institutions.

BSP Governor Benjamin Diokno told participants of the 14th Annual Group of 24/Alliance for Financial Inclusion Policymakers’ Roundtable discussion at the 2022 Spring Meetings of the International Monetary Fund and World Bank in Washington D.C. last week that Project CBDCPh marks a major step for the entire finance industry to better understand the opportunities and risks of wholesale CBDCs.

“The learnings from the pilot will be critical in constructing the BSP’s medium- to long-term roadmap for more advanced wholesale CBDC projects that shall further strengthen the Philippine payment system,” Diokno said.

More than 80 central banks worldwide are exploring CBDCs, prompting the BSP to take a proactive stance in learning digital technologies that drive the emergence of alternative payment instruments.

“The BSP has also taken major steps in understanding CBDCs and knowing the benefits, risks, as well as policy implications for issuing a Philippine CBDC,” Diokno said.

After conducting an exploratory study to determine and evaluate the issues that surround CBDC issuance in 2020, Diokno said the central bank identified cases for CBDC issuance in the Philippines by comparing the functional features of the country’s existing retail and large-value payment systems with the use of CBDCs in 2021.

Project CBDCPh is led by an intersectoral project management team to ensure coverage of critical operational areas. These include policy and regulatory considerations, technological infrastructure, governance and organizational requirements, legal matters, payment and settlement models, reconciliation procedures, and risk management.

In contrast to general purpose or retail CBDC intended for use of the general public, a wholesale CBDC is restricted mainly to banks and other financial institutions.

Diokno said that a wholesale CBDC may contribute to addressing frictions on large cross-border foreign currency transfers, settlement risk exposure from using commercial bank money in equities, and operating an intraday liquidity facility.

According to the BSP chief, the central bank is exploring the potential use of wholesale CBDCs in areas where these can yield the greatest value-adding benefits to the payment system.