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The Acceptance of Digital Tokens by the Philippine Central Bank

2021-08-31

Last year, the Philippine central bank was able to approve rules that allow the licensing and creation of digital banks to become a part of the efforts to extend financial services since so many consumers have now turned to the banking system's virtual realm.

The central bank expects that at least half of the payments would eventually be made digitally by 2023. Around 70% of the adults will be using a digital account for transactions by this time, allowing consumers to have additional options that can make them steer away from loan sharks. According to the Governor of BSP or Bangko Sentral ng Pilipinas, Benjamin Diokno, the banks are seen as added partners that can further expand the Filipinos' access and promote market efficiencies with a more extensive range of financial services.

This framework will allow digital banks to become distinctly classified as a lender. According to the central bank, financial services and products are what digital banks will be offering that would get processed from one end to another with the use of electronic channels or digital platforms without any physical branches. Even if they operate digitally, these banks would still have to set up their headquarters in the country to support operations and management that include handling all of their clients' concerns.

The department of the central bank responsible for policymaking can limit the number of digital bank licenses that would depend on the applications it gets.

The BSP wants to attract players with technical management expertise, effective management of risks, ample financial strength, and a strong value proposition. The ING and CIMB Bank are the foreign banks that have launched digital financial banking platforms in the country. In the first half of 2020, the payment settlement facility of the Philippine central bank was able to process 5 thousand transactions that have a value of 2 trillion pesos or $41.6 billion every day. According to the information from the central bank, this value is three times the daily average from 2004 to 2007.

Because of this, the Philippine central bank established a committee that will check out the policy implications and feasibility of having its own digital currency issued. However, before launching this, they would have to check out the group's findings first. Even if cryptocurrencies may not replace coins or banknotes, the CBDCs or central bank digital currencies can eventually become fiat money in a new form.

Right now, cryptocurrencies may not significantly affect the existing demand for physical money. However, blockchain technology is continuously eliciting interest when it comes to the revolution in the delivery of the needed financial services.

The Rapid Rise of Digital Payments in the Philippines

BSP is interested in CBDCs because of the rapid and extensive increase of digital payments in the country. As people go through the COVID-19 pandemic, more and more individuals are starting to use digital transactions.

The country's biggest mobile money services provider is the primary wireless carrier, Globe Telecom's GCash. According to them, by 2020, their registered users have been able to increase to 33 million significantly. Their users were 65% more than the 20 million users last 2019. It shows that one out of three Filipinos now has a GCash account. GCash is currently the Philippines' biggest mobile wallet that has 33 million registered users.

Diokno of BSP also said that last May of 2020, the e-wallet service, PesoNet, experienced an astonishing 325% surge in volume. The e-payment service called InstaPay was also able to increase its transactions by 57%. By 2023, BSP has targeted to increase the share of electronic transactions to 50%. However, the figure was only able to reach 10% last 2018.

The Ambitious Pursuit of Asian Central Banks for Digital Currency

One of the countries that became a part of the CBDC race was the Philippines. Last June 2020, the Bank of Thailand announced that they would create a project to develop a prototype payment system using a CBDC for businesses. The project can eventually build upon the current blockchain initiative of the Philippine Central Bank called Project Inthanon.

Last July 2020, the assistant governor of the BOT named Vachira Arromdee informed the people that the central bank has already been utilizing the CBDC for some business transactions. BOT started to use the CBDC for any transaction with the Hong Kong Monetary Authority last September. The Bank of Japan has experimented with the use of the CBDC. The Japanese government said that they had launched a digital yen as a part of the legislative plan for the year.

In this regard, China was able to take the lead as it started to pilot its project on a national digital currency called the Digital Currency Electronic Payment (DCEP) at the start of 2020.

Last August 2020, the most significant four commercial state-owned banks of China, the Agricultural Bank of China, the China Construction Bank, the Industrial and Commercial Bank of China, and the Bank of China, began the CBDC's extensive-scale internal testing.

Users who become a part of the trial can have the app used to make payments, transfer money, withdraw cash, and top up their accounts once they register with the use of their mobile number.

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