The Philippines is set to introduce a Central Bank Digital Currency (CBDC) that differs from conventional blockchain technology. This move by the Bangko Sentral ng Pilipinas (BSP) marks a significant departure from the trend seen in many other countries exploring CBDCs. Let’s delve into this groundbreaking development and its implications for the digital currency landscape.
Understanding the Shift Away from Blockchain
The BSP took a different approach from other central banks around the world regarding the use of blockchain technology for their plans to create a CBDC, due to launch two years from now. BSP Governor Benjamin Diokno made it clear that even though blockchain technology has merits for decentralized applications like cryptocurrencies, it is not suitable for a centralized CBDC.
The Rationale Behind the Decision
Governor Diokno has ruled out the use of blockchain technology for a centralized CBDC system. He cited several reasons for this decision. Firstly, blockchain technology is complex and expensive, which could pose challenges in terms of interoperability, scalability, and efficiency for a centralized CBDC system. Secondly, the BSP aims for simplicity, speed, and cost-effectiveness in its CBDC endeavors, which may not be possible with blockchain.
The Wholesale CBDC Approach
The BSP (Bangko Sentral ng Pilipinas) is working on the development of a wholesale non-blockchain CBDC (central bank digital currency), specifically designed for institutional use. This wholesale CBDC will enable real-time interbank transactions and settlements. It will enhance the efficiency, safety, and transparency of both domestic and cross-border payments. Unlike a retail CBDC that is intended for public circulation, this wholesale CBDC will be accessible only to financial institutions.
Global Trends and Implications
The Philippines decided not to use blockchain for its CBDC, joining countries such as Sweden and Japan which made similar moves. However, this contrasts with the initiatives taken by nations like China, which are exploring blockchain-based CBDCs. This difference highlights the various approaches and factors that shape the development of digital currencies worldwide.
The BSP’s recent announcement indicates a new era in the development of Central Bank Digital Currencies. It highlights the Philippines’ practical approach to digital innovation. Blockchain is often a core element of digital currency projects. However, the BSP’s decision emphasizes the importance of selecting technology that fits specific objectives and contexts. As the digital currency landscape continues to evolve, the non-blockchain CBDC initiative in the Philippines sets the stage for creative solutions and progress in financial inclusion.
