BSP has yet to issue its own digital currency

Bangko Sentral ng Pilipinas (BSP) will not issue its own central bank digital currency (CBDC) for the next three to five years, according to its most senior official.

When asked if the BSP could introduce CBDC within its term, BSP Governor Benjamin E. Diokno said: “I don’t think so.”

Diokno, the fifth governor of the central bank, will end his term in 2023. “Most central banks say they will not issue CBDCs in the next five years. So not within my term, ”he said during his regular“ GBED Talks ”press talk.

The BSP has recently completed its initial exploratory study of CBDCs and has addressed issues such as their impact on monetary and financial stability. Pros and cons were also reviewed, such as potential risks and possible implications from the point of view of monetary policy, financial supervision, payments and settlement, financial inclusion, legislation and regulations. The study also looked at CBDC forays from other central banks.

“CBDC is considered programmable money. This means that your specific designs, features and attributes can be incorporated into them. These design features are crucial, ”said Diokno. He said that the economic effects of a CBDC will depend significantly on the model of these digital currencies.

A CBDC will also have an impact on banknote printing. “If the BSP decides to issue a retail CBDC, this will most likely result in less banknote printing. This in turn leads to a lower cost of printing money for the BSP, ”said Diokno. “The BSP’s decision on money printing depends on a number of factors, the main one being the demand for physical currency.”

For now, cash is the preferred means of payment for retail transactions in the country, he said. “The BSP is driving greater adoption of digital payments. If digitization takes root in our society, we may see less demand for physical currency in the future and consequently less currency printing by the BSP, ”added Diokno.

Even though there are no plans for a CBDC within his term or until 2023, Diokno said that the BSP will continue to monitor developments in this space. “For now, there are three areas that BSP would like to focus on in the future with respect to CBDCs: research, capacity building and networking,” he said.

In terms of research, Diokno said this could include uses for the current payment system for “potential areas for improvement” and to further analyze privately issued digital currencies in the Philippines. However, he cautioned that CBDCs fundamentally differ from privately issued digital currencies or cryptocurrencies. “Cryptocurrencies do not have any central bank to back them up and cryptocurrencies cannot be considered money. Given the volatility of their prices, cryptocurrencies cannot function as a medium of exchange or unit of account, and only the least risk-averse investors would view them as a store of value. “

“By contrast, a CBDC is a digital form of central bank money that is denominated in the national unit of account and functions as a medium of exchange and store of value. Given these characteristics of CBDCs, it is expected to be preferable to privately issued digital currencies, ”Diokno said.

The head of BSP said that there are a growing number of central banks that are doing what they are doing now, which is laying some form of CBDC foundation.

“Many of them are conducting conceptual research, like us, while some have progressed to proof-of-concept experiments. A smaller number of central banks have already developed and are in the pilot testing stage of their CBDC. Despite these developments, very few central banks plan to issue CBDCs in the next five years, ”Diokno said, citing surveys conducted by the Bank for International Settlements in 2018 and 2019.

“Some central banks are also participating in CBDC activities as part of contingency planning. This encourages preparedness in the event that the payment environment requires the adoption of a CBDC, ”Diokno said.

The central banks that have some form of CBDC in the last two years are the Marshal Islands with their “sovereign” cryptocurrencies; the Central Bank of the Eastern Caribbean has issued its own monetary union and is in a pilot phase; and the Central Bank of the Bahamas is also piloting its “Sand Dollar Project.”

The BSP study said there are benefits and risks to CBDCs. The potential benefits are: addresses the decrease in the use of physical cash; promotes financial inclusion, as it provides another means of conducting financial transactions; broadens the range of monetary policy options, as in addition to cash and bank deposits, the CBDC adds a third form of central bank liability that can be used for monetary policy; and encourages innovation in the payment system, as it presents another form of competition with privately issued digital currencies.

The potential risks are the following: possible financial disintermediation; risks to consumer welfare and loss of privacy; higher costs to the banking system due to possible competition between CBDCs and bank deposits; incidence of money laundering and financing of terrorism; and cybersecurity issues.

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