The Philippines has become the latest country to experiment with central bank digital currency (CBDC). The Bangko Sentral ng Pilipinas (BSP) announced in a press release that it is now pursuing a wholesale CBDC pilot project, dubbed as Project CBDCPh.
In a statement, BSP explained Project CBDCPhit is part of efforts to improve the stability of the country’s payment system. Project CBDCPh will put CBDCs to the test for large-value transactions 24 hours a day, seven days a week, across selecta few financial institutions.
Introducing CBDC to Filipinos
The announcement comes after the country stated that it has no intentions to produce a CBDC soon. In April, BSP Governor Benjamin Diokno stated that the Philippines’ financial system was still heavily reliant on cash transactions and that the BSP was not eager to develop its own CBDC.
“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 remarked.
He went on to say that the wholesale CBDC project might help the government cope with other financial system issues, including large cross-border transfers, risk exposure from using commercial bank money in equities, and running an intra-day liquidity facility.
Based on the report, the most challenging hurdle to CBDC’s adoption will be the public’s willingness to use it. CBDCs will inevitably clash with payment solutions on which the public has already grown to rely on, and with just a few CBDCs in operation, it is unknown how people will react to the transition.
Stablecoins for Cross-Border Transfers
The BSP also sees stablecoins as a key component in strengthening the country’s payment system—a topic that came up during the Polish Blockchain Association’s “Banking Unblockchained?” webinar with Tokenized CEO James Belding and nChain Director of Commercial and Strategy Simit Naik.
Naik argued that cross-border payments are expensive due to overhead costs charged by the intermediaries involved. While blockchain does not completely remove middlemen, it minimizes them through automation, altering “the way the economy works” in the long run.
Because the Philippines relies on foreign remittances for a significant portion of its GDP, its central bank previously conducted a series of studies to assess the viability of stablecoins for payment settlement alongside currencies. BSP’s preliminary results were promising, and the financial regulator stated it will work with private companies to further investigate its possibilities.
BSP’s Director of Technology Risk and Innovation Melchor Plabasan remarked, “We have seen it really has the potential to revolutionize both domestic and cross-border payment.” He added that adopting stablecoins will have several advantages for citizens, particularly overseas Filipino workers (OFWs).
Naik noted that privately issued stablecoins may be a better option for the public if properly backed by actual assets. He feels that today’s stablecoins are not meant for spending and that there is insufficient infrastructure to sustain them. They are primarily used to store value for exchange traders, and Naik claims that replicating legacy systems will cause the same mistakes.
Although the government would have to balance its relationship with central banks and still impose control over CBDCs’ usage and privacy, using stablecoins in the Philippines will be possible once they overcome technical and regulatory barriers.