The Philippines has requested the IMF to help with staff training for its wholesale central bank digital currency (CBDC) sandbox and to provide advice. In late November 2021, the Bangko Sentral ng Pialipinas (BSP) said it was considering a wholesale CBDC, which was confirmed in May, but few details were shared about Project CBDCph. Now the IMF has added more color as part of a country report on the Philippines.
A retail CBDC was seen as having limited appeal because retail payments are already primarily digital in the Philippines, and there have been financial inclusion reforms.
In contrast, there are several motivations for progressing a wholesale CBDC, starting with addressing cross border payment frictions. With a large diaspora working abroad, the Philippines is one of the five leading recipients of inbound remittances in 2021, according to the World Bank. So cutting the cost of using the correspondent banking network and speeding up payments is a potential vote winner.
The IMF pointed to the lessons that can be learned from multi-CBDC research projects, including Project Dunbar and the MBridge project, which both use a shared platform. Part of the work in the trials explored addressing different regulations across the jurisdictions. To get started, the IMF suggested that the Philippines might want to test a cross border CBDC with just one other jurisdiction rather than a multi-country solution.
Another motivation for a CBDC is that the equities market uses commercial bank money for settlement with the resultant counterparty risk. Additionally, there are challenges with the current automated intraday liquidity facility that the central bank provides to commercial banks, and a CBDC may be a route to address this.
However, the IMF also outlined several potential challenges. For example, regarding anti-money laundering (AML), the country is on the FATF list for enhanced monitoring owing to deficiencies. So AML would need strengthening to implement a CBDC. The central bank has also acknowledged the risk of a more significant role by the central bank reducing interbank activity, which might detract from progressing capital market developments in the country.
As reported earlier in the year, the Philippines is also working with Soramitsu, which helped Cambodia roll out a blockchain-based payment network used for retail and wholesale payments.
