In 2020, the Philippines initiated an exploratory study on the viability of central bank digital currencies (CBDCs). Now, the region aims to launch a wholesale CBDC within two years.
However, before its release, there’s more work that needs to be done. According to The Bank for International Settlements (BIS), financial institutions in the Philippines aren’t adequately equipped to handle the risks associated with CBDCs.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. informed the Inquirer that a decision was made to focus on developing a wholesale CBDC instead of a retail one. The launch is scheduled in roughly two years, and notably, distributed ledger and blockchain technology won’t be utilized.
Remolona told the Inquirer: “Other central banks have tried blockchain but it didn’t go well. With ‘wholesale’ CBDC, banks will be the only counterparties and then, retail will ride on them.”
The BSP believes that wholesale CBDCs can enhance the safety and efficiency of both domestic and cross-border transactions. Banks will gain an additional avenue to deposit funds into the BSP, outside of reserves, facilitating real-time interbank payments.
The Case for Wholesale CBDCs
Wholesale CBDCs offer numerous advantages to financial institutions. By eliminating intermediaries, they significantly reduce settlement times and streamline transaction processes. For cross-border payments, securities transactions, and foreign exchange, they have the potential to lower fees. Additionally, they provide Fis with a more secure form of digital currency.
The Philippines isn’t the only country tapping into the benefits of wholesale CBDCs. In fact, Singapore is set to launch its wholesale CBDC early this year. During the Singapore Fintech Festival in November, Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), said that Singapore was collaborating with local banks to launch a pilot to use wholesale CBDCs.
This follows Singapore’s initial venture into testing wholesale CBDCs back in 2016. They were mainly operated on distributed ledgers to facilitate real-time cross-border payments and settlements with central banks. Project Ubin marked their inaugural pilot project, focused on experimenting with blockchain and digital ledger technology to settle and clear both securities and payments.