Thomas Daniels
Within the next two years, the Philippines is gearing up to launch a central bank digital currency (CBDC) that eschews blockchain technology, as announced by Eli Remolona, Governor of the Bangko Sentral ng Pilipinas (BSP). This move aligns with a global trend where digital tokens are being considered by regulatory bodies as a dependable method of payment and a secure store of value, providing an alternative to the fluctuating nature of cryptocurrencies. Remolona has decided on a wholesale approach for the CBDC, setting it apart from other central banks by avoiding blockchain.
This strategy is informed by the ineffectiveness of prior endeavors by central banks to harness blockchain for such purposes. By choosing a wholesale CBDC model, only banks will engage directly with this system, laying a foundation for retail banking to build upon. This model aims to increase the efficiency and safety of payment systems both domestically and internationally, ensuring banks have a trusted platform for instant interbank settlements.
Remolona cites the wholesale CBDC’s potential to facilitate a risk-free banking environment and bolster real-time payment infrastructures as key reasons for its adoption. Nonetheless, he recognizes the hurdles faced by retail CBDCs, such as the risk of cutting out intermediaries and potentially enlarging the central bank’s role in the financial markets. This wholesale CBDC project is slated for completion within Remolona’s term, aiming to mirror the success of other central banks in similar endeavors.
He also noted the progress in CBDC development worldwide, including the initiatives like Sweden’s e-krona and China’s digital yuan, which are primarily aimed at retail transactions.
The technological framework for the Philippine CBDC will be the Philippine Payment and Settlement System, overseen by the BSP, which will forgo the use of blockchain technology. This decision is backed by the Bank for International Settlements (BIS), which posits that a wholesale CBDC could significantly bolster security against fraud and cyber threats via improved digital record-keeping.
The exploration of CBDCs is rapidly advancing on a global scale. For example, the Reserve Bank of India (RBI) is actively enhancing its digital rupee by adding offline capabilities, aiming to make digital currency accessible in areas with sparse internet coverage to promote wider financial inclusion. RBI Governor Shaktikanta Das has highlighted a phased approach to introducing these features, targeting an extensive range of settings through pilot schemes.
