Digital Dollar Project completes CBDC retail remittance pilot with Western Union

The Digital Dollar Project (DDP) has completed a pilot study on remittance payments to the Philippines using a simulated retail central bank digital currency (rCBDC). Partners in the project included Western Union and BDO Unibank.

During the study, the DDP’s Champion Model was employed. This involved the simulation of a central bank issuing CBDCs to an intermediary bank, which then provided access to Western Union (WU) for remittance to a BDO Unibank customer in the Philippines. WU utilized a decentralized exchange (DEX) to trade a dollar CBDC for a Philippine peso CBDC at a real-time exchange rate set by a third-party oracle. After receiving payment confirmation, WU transferred the amount to the bank customer’s account.

The noteworthy aspect of the study was that the entire transaction used central bank money rather than commercial bank money, which is the current practice. The DEX played a key role in the study, as its development could lead to increased competition and transparency. However, one challenge identified was that most remittances to the Philippines occur when trading is closed in Manila, which could be problematic.

The study did not address privacy issues directly, but it noted that distributed ledger technology could help preserve privacy by allowing for granular control over consumer data sharing.

By utilizing distributed ledger technology, the transfer of the message and the transfer of value occurred simultaneously and within seconds. This stands in contrast to current technology, where value transfer takes longer than message transfer, introducing counterparty and credit risk.

The conclusion drawn from the pilot was that CBDCs do not aim to replace the services offered by Western Union and BDO Unibank but rather present an opportunity to modernize processes and enhance efficiency for private sector companies and their customers.

Remittances, which are usually valued between $200 and $300 per transaction, reached a total value of $626 billion in 2022 according to research cited in the report. In 2021, $74 billion in remittances were sent from the United States, with 7% of U.S. households sending remittances abroad.

Typically, remittances from the U.S. to the Philippines incur a cost of 4.4% on a total transaction of $200, with bank transfers costing an average of 7.98%. The simulated process demonstrated potential time and cost savings, as well as increased transparency.

The DDP, co-founded by former Commodity Futures Trading Commission Chair Christopher Giancarlo, launched its technical sandbox in September with support from Accenture.

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