BSP says wholesale CBDCs can reduce transaction costs, lags

CROSS-BORDER PAYMENTS, including remittances and institutional transfers, and financial securities settlement are among the most promising applications for a wholesale central bank digital currency (wCBDC) in the Philippines, the Bangko Sentral ng Pilipinas (BSP) said.

A report on the central bank’s Project Agila, its pilot project to explore the potential introduction of wCBDCs in the country and possible use cases, showed that wCBDCs have the potential to address gaps in the country’s payments space and bring down transaction costs.

“Wholesale CBDCs can enhance efficiency in the payments infrastructure and develop new financial services that could address evolving needs in the national payments ecosystem,” BSP Governor Eli M. Remolona, Jr. said in a statement.

CBDCs are issued as direct central bank liabilities. Wholesale CBDCs are designed for use by banks and other financial institutions to settle interbank payments, securities transactions, and cross-border payments, among others.

Similar to the current Real-Time Gross Settlement (RTGS) system, wCBDC would allow each bank to maintain an account with the BSP, and balances would be credited or debited based on transactions with other banks. “The key difference is in the use of distributed ledger technology (DLT), which enables greater automation, faster processing, and lower transaction costs.”

For cross-border payments, two key use cases would be for remittances and the banking sector’s transactions.

“Cross-border payments and interbank transfers offer the most immediate and substantial benefits due to their existing scale and economic importance,” the central bank said, noting that overseas remittances account for 10% of nominal gross domestic product, while banks’ gross cross-border transactions account for 14% of total banking assets.

Remittance efficiency would be improved as the technology could reduce costs and settlement lags, which would increase recipients’ disposable income, and, as a result, boost domestic consumption.

“Enhanced cross-border transaction efficiency reduces bank costs and improves international operations,” it added.

“Given the significant proportion of GDP and banking assets involved, adopting wCBDC in this area could have profound impact; even 10-20% efficiency gains could yield substantial economic benefits.”

ROUND-THE-CLOCK SETTLEMENT
Wholesale CBDCs and the use of DLT and tokenization could also enable inter-institutional transfers outside normal business hours, which could boost liquidity management among financial institutions through real-time settlements, automation, and programmability, the central bank said.

“Availability of wCBDC for fund transfers beyond normal operating hours can potentially contribute to promoting financial inclusion by potentially enabling financial institutions and payment service providers to offer faster, more efficient, and lower-cost payment services to end-users,” it said.

“The BSP also recognizes the potential for wCBDC to serve as a business continuity solution for PhilPaSS Plus, that could enhance the resilience of the Real-Time Gross Settlement system.”

It added that there is also significant potential for interoperability with other payment systems and financial market infrastructures.

“Through secure integration with existing payment systems (RTGS and National Retail Payment System), a wCBDC settlements beyond normal business hours can enhance financial inclusion by providing infrastructure for faster, cost-effective payment services. This increases transaction account accessibility and usage, improves fintech platform integration, and enables tailored financial services for underserved communities. By reducing entry barriers and making financial services more attractive and reliable, wCBDC could potentially bring more people into the formal financial system and improve their economic well-being.”

Meanwhile, adopting wCBDCs for financial securities transactions via tokenization could significantly reduce settlement risks by narrowing the time gap between trade execution and final settlement.

This is also seen to enhance market liquidity, as lower costs and increased transparency could boost investor participation and capital inflows.

“As the tokenized securities market develops, wCBDC adoption could support market growth and provide additional economic benefits,” the BSP said.

However, despite potential benefits, the BSP said the use of wCBDCs could introduce technology, operational, systemic, and innovation risks, which would need to be addressed by “robust governance structures; layered security protocols, bespoke risk management framework; as well as adaptive supervisory and regulatory frameworks to ensure the successful implementation of a wCBDC system.”

“A wCBDC requires careful design and implementation to maintain financial stability, ensure effective monetary policy transmission, and support macroeconomic growth.”

The Project Agila findings are expected to guide the formulation of the BSP’s CBDC Roadmap, which will outline the initiatives, stakeholder involvement, timelines, and deliverables for exploring, testing, and developing use cases that address real constraints.

This would also involve identifying policy goals, expected outcomes, key performance indicators, and success measures for each use case.

“(The) BSP envisions a future where wholesale CBDCs transform financial markets and cross-border payments through speed, efficiency, and trust,” it said. “In the same spirit, the BSP will continue exploring the potential of CBDCs and tokenization to transform trade payments — laying the groundwork for a more seamless, digital, and interconnected economy.”

“Through strong coordination across the payments industry, financial market infrastructures, and government agencies, we aim to develop not only a unified payments platform but also a bold and forward-looking blueprint for the future of Philippines’ national payments system.” — Justine Irish D. Tabile