BSP says it is on track to study and test its own digital currency

By means of Luisa Maria Jacinta C. Jocson, News reporter

THE STUDY and testing of a central bank digital currency (CBDC) is on track, with implementation targeted by 2029, a Bangko Sentral ng Pilipinas (BSP)ffcially said.

“We are already about to complete a proof of concept. This is an innovative payment instrument. In fact, no central bank in the world has already launched CBDC on a large scale, I think, with the exception of the Swiss National Bank,” BSP Deputy Governor Mamerto E. Tangonan said during a brief speech.Fon Tuesday.

Mr. Tangonan said that they will ensure that there will be users of this BSP-issued digital currency before it is launched.

“Otherwise you create a white elephant,” he added.

In September, the BSP designated Hyperledger Fabric as the distributed ledger technology for Project Agila, the pilot project for CBDCs.

Since 2021, the BSP has been assessing use cases for wholesale CBDCs.

BSP Governor Eli M. Remolona Jr. previously said the central bank could launch CBDCs within its six-year term ending in 2029.

“If after a proof of concept that now brings the literacy and knowledge of both the BSP and the banks to a level where they are ready to launch it, then only at that point will we make a decision whether or not to go ”, said Mr said Tangonan.

“This is something completely new and we have to make sure we can do thatFrun it and run it. It’s a BSP-issued digital currency, so we need to make sure we can do thisFmaintain it, maintain it and operate it safely, and that the banks can do the same and that they have business use cases for it.”

The identified potential applications for CBDCs include liquidity management, securities settlement and cross-border payments, Mr Tangonan added.

Bridget Rose M. Mesina-Romero, director of BSP’s Payments Policy and Development Department, said they have completed the first phase of Project Agila with the selection of Hyperledger Fabric for the project’s sandbox experiments.

The BSP aims to assess whether the distributed ledger technology can facilitate the inter-institutional transfer of funds between participating financial institutions.

“The goal here is to gain a better understanding of CBDC technology… and ultimately come up with a baseline assessment to determine the CBDC roadmap for the future,” she said.

The central bank has completed the first wave of the test run, after testing a distributed metering technology and tokenization of CBDC for wholesale, Ms. Mesina-Romero said.

The BSP is studying the functionality and performance of the CBDC, she added.

“One of them is the functionality criteria. We assess it in light of our usual currency life cycle. This time we adapt it to the CBDC life cycle of creation; Creating CBDC, issuing CBDC, conducting inter-institutional fund transfers into CBDC, and then ultimately redemption and retirement.”

“We also assess the criteria for its performance, i.e. whether it can facilitate 24/7 transfers, the security on the user interface, because the next phase will deal with the cybersecurity assessment of the blockchain technology, and finally the data end- to-end testing among the BSP and financial institutions.”

By the end of the year, the central bank will be able to release the findings of its pilot tests.

“At the end of this project, which will take place towards the end of this year, we will release a report with all our findings and assessments regarding our sandbox testing experiments,” Ms Mesina-Romero said.

RETAIL CBDCs?
Mr Tangonan also said the central bank is open to studying the possibility of oFoffers retail CBDCs, but does not yet see the need for this.

“That will of course always remain under consideration, except that we need to be convinced that there is indeed something that a retail CBDC can do.Fthat current digital payments cannot do that,” he said.

“Right now, we don’t see a gap in the way consumers, businesses and government use digital payments. But as you know, the world is changing every day, so one day there may be a clear use case for CBDC for retail.”

The BSP previously defined CBDCs as a form of digital money denominated in the national unit of account and are direct liabilities of the central bank.

Wholesale CBDCs can be issued to commercial banks and other financial institutions to settle interbank payments, securities transactions and cross-border payments, among others, it added.

The International Monetary Fund said last year that CBDCs are crucial for increasing financial inclusion and improving cross-border payments.