BSP still undecided on digital currencies
THE Bangko Sentral ng Pilipinas (BSP) remains undecided on whether to issue its own central bank digital currency (CBDC) in the future, BSP Governor Benjamin Diokno told journalists on Thursday.
This, after the local Central Bank recently completed its exploratory study on CBDC. The research was carried out by a composite Technical Working Group.
“There is an increasing number of central banks engaged in some form of ground work on CBDC. Many of them are undertaking conceptual research—like we have—while some have progressed to proof- of- concept experiments. A smaller number of central banks have already developed and are in the pilot test stage of their CBDC,” Diokno said.
Just this month, China concluded its pilot program for its own central bankbacked digital currency. The country’s digital currency is expected to help track flow of funds in the economy and address some money laundering risks.
The US Federal Reserve also said they are currently assessing their own financial and economic conditions on how a central bank-backed digital currency can fit into their systems.
“A central bank digital currency fundamentally differs from privately issued digital currencies or cryptocurrencies. Cryptocurrencies do not have any central bank entity to back them up. Moreover, cryptocurrencies cannot be considered as money. Given the volatility of their prices, cryptocurrencies cannot function, either as a medium of exchange or unit of account, and only the least risk averse investors would consider them a store of value,” Diokno said.
“By contrast, a CBDC is a digital form of central bank money that is denominated in a national unit of account and functions as both a medium of exchange, and a store of value. Given the features of CBDC, it is expected that it will be preferred than privately issued digital currencies,” he added.
Lower printing, financial inclusion
Should the BSP decide on issuing its own digital currency, Diokno said this could potentially reduce the printing costs of physical cash and can help promote financial inclusion in the country.
If the BSP decides to issue a retail CBDC, this will most likely result in lower printing of banknotes. This in turn leads to lower cost of painting money for the BSP. The BSP’S decision and the painting of money, changes in a number of factors, primary of which is the demand for physical currency. Currently, cash remains as the preferred means of payment for retail transactions in the Philippines.
Diokno also said it will potentially promote financial inclusion, as it provides another means to perform financial transactions and could encourages innovation in the payments system, as it presents another form of competition with privately issued digital currencies.
The BSP governor, however, noted that despite these developments, very few central banks plan to issue CBDC in the next five years. “This is according to surveys conducted on central banks’ CBDC activities,” he said.
For the BSP, Diokno said they will continue to study and weigh the benefits and risks of CBDCS for the Philippines. Among the developments they are looking to make in the coming years include added research, capacity building and establishing of more networks.
‘Not within my term’
Asked on whether the BSP will start issuing CBDCS or will show some form of readiness to issue their own digital currencies within his term, Diokno said: “The end of my term is 2023. I don’t think so. Most central banks say they will not issue CBDC within the next 5 years, so, not within my term.”