BSP continues pilot testing of digital currencies

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) continues to ramp up efforts to transform the country into a cash-light from a cash-heavy economy to meet the deadline it set to shift half of total retail transactions to digital channels.

BSP Governor Felipe Medalla said the central bank is set to issue a merchant acquiring and aggregation framework to support the further digitalization of merchant payments. Digital merchant payments now account for over 70 percent of total monthly retail payments.

Medalla said the BSP is also finalizing a cooperative oversight framework to help prevent regulatory arbitrage caused by gaps, inefficiencies, duplications, and consistencies in regulations of different supervising authorities.

Furthermore, the BSP chief pointed out that the central bank is also set to launch other digital payment streams, including InstaPay Debit Pull as well as Request to Pay.

He said the BSP has started the conduct of pilot wholesale central bank digital currency (CBDC).

Medalla said the exercise is a major capacity-building activity for both the BSP and the financial industry.

“We will not go into retail CBDC. We will be in wholesale CBDC, which hopefully, will also facilitate cross border transfers. And of course, the dream is for any ASEAN citizen can use their phone to make payments wherever he is in the ASEAN,” Medalla 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.

The BSP launched the project called CBDCPh to build organizational capacity and hands-on knowledge of key aspects of CBDC that are relevant for a use case around addressing frictions in the national payment system.

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 earlier 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.

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.

Under its Digital Payments Transformation Roadmap, the BSP aims to transform 50 percent of total retail transactions to electronic channels and increase the number of Filipino adults with bank accounts to 70 percent by 2023.

With the COVID-19 pandemic serving as catalyst, the share of digital payments to total retail transactions increased to 30.3 percent in 2021 from 20.1 percent in 2020, while the number of banked Filipino adults almost doubled to 56 percent in 2021 from 29 percent in 2019.

Aside from the vision of a cash-lite economy, Medalla said the BSP still recognizes the role of cash.