Pilot testing of BSP digital currency scheduled in Q4

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is in talks with several banks and financial institutions for the pilot testing of the central bank digital currency (CBDC) in the fourth quarter.

BSP Governor Benjamin Diokno said in an interview with ABS-CBN News Channel that the regulator continues to invite entities to participate in the pilot testing of Project CBDCPh as several banks have been onboarded.

“We are going to do this on an experimental basis starting in the fourth quarter of this year. We will experiment with some large financial institutions limited in the Philippines. We have to learn to walk first before we run. So that’s the purpose of this pilot,” Diokno said.

CBDCs are designed to be equivalent in value to a nation’s paper currency and subject to the same government-backed guarantees. In addition to printing money, central banks can issue CBDCs as a digital representation of a country’s fiat currency.

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, which is intended for use of the general public, a wholesale CBDC is restricted mainly to banks and other financial institutions.

A wholesale CBDC, the BSP explained, 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, it is exploring the potential use of wholesale CBDCs in areas where these can yield the greatest value-adding benefits to the payment system.

“This is a pilot, not a full blown implementation of the CBDC,” the BSP chief said.

After conducting an exploratory study to determine and evaluate the issues that surround CBDC issuance in 2020, the BSP 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.