Why The Philippines Is Reluctant About CBDC

News, Opinion, Regulation | December 8, 2020 By:

Central bank digital currency (CBDC) is one of the hottest topics today in the financial industry. CBDC is a digital form of fiat money but the difference from other digital currencies like bitcoin is that it’s officially legalized and controlled by the government. Many countries have been discussing the benefits of integrating digital currency. The implementation of this initiative has become especially vital in the middle of the pandemic because during the lockdown people saw the advantages of making payments and transacting money using cryptocurrencies. Now in order to avoid illegal money transactions using various types of cryptos, central banks came up with the idea of creating CBDCs.

Currently, the process of implementing these new digital currencies has already started. For example, China has been discussing a lot about introducing digital yuan, and even more, most of the European countries like the idea of switching to digital euros. Although it’s not yet possible to switch completely from physical to online money, still central bank digital currency can be pretty much beneficial for economic growth. But some governments are against this initiative and the Philippines is one of them. Recently the head of the central bank, Benjamin Diokno announced that the country is not yet ready to create a digital peso. 

Rejection of digital peso

There are several reasons why representatives of the central bank in the Philippines believe that digital pesos can’t compete with physical money. Now after conducting some research Diokno believes that people in the Philippines are not ready to use a digital counterpart of the physical peso and the main reason for this is the low level of internet penetration in some of the regions. 

Needless to say, if people don’t have the internet, they won’t be able to make online transactions using CBDCs. However, if we look at the activities of residents from up close, the general image may be different. In fact, a great number of Filipinos are using cryptocurrencies today. The main purpose for them is to take part in fx trading which is quite popular in the country. For this, they usually use cryptocurrencies, and because of the related advantages, trading with Forex brokers in the Philippines for locals is quite an attractive activity. This means that people actually realize the benefits of using digital money. They use cryptos mainly because it is convenient and gives them the opportunity to transact money quickly and easily. However, with cryptos, there are always some risks when it comes to safety. But with CBDCs there won’t be any risk at all as they are regulated by the central bank and this is why some financial experts think that there’s no need to worry about the adoption of the digital peso. 

The Philippines is not ready for the digital peso

However, the central bank still thinks that they are still far from switching to digital currency and much work is needed to make it a reality despite the fact that he was trying so hard to start implementing CBDCs to the economy of the country since the beginning of summer. NOw as they have analyzed the results of the research conducted in the summer, Diokno says that CBDC can’t be issued in the Philippines in the near future. Before they start to seriously think of the possibility of CBDC some more investigation is needed in order to create networks between other financial institutions and central banks. 

But for now, as he said in a press briefing, many factors distract the effectiveness of CBDCs in the Philippines, such as monetary policies, payments systems, financial inclusion, regulatory and legal frameworks, etc. So, before they actually start to use digital pesos, the government needs to search for ways of improving the existing payment system of the country. As the Bangko Sentral ng Pilipinas (BCP) believes, the ongoing research about CBDC needs some technical input from the International Monetary Fund, as well as support from the Bank of International Settlements. Currently, the plan is switching over 50% of retail payments into digital form by 2023 and before this time, make sure that most of the citizens have bank accounts. 

However, more likely, BCP is waiting for other countries to see how effective digital yuan or digital euro will be, and only afterward will they start to think about developing the digital peso which seems quite risky at the moment.