BSP eyes wholesale CBDC for payments

By Francis Allan L. Angelo

The Bangko Sentral ng Pilipinas has identified securities settlement and large-value cross-border payments as potential applications for a wholesale central bank digital currency, as the regulator studies ways to modernize the country’s financial market infrastructure.

The potential use cases were highlighted in the BSP’s “Project Agila” report, which aims to help the central bank and participating financial institutions explore possible applications of central bank digital currencies.

CBDCs are digital forms of money that are direct liabilities of the central bank.

A wholesale CBDC, or wCBDC, is designed for use by commercial banks and other financial institutions, rather than the general public.

In a statement, the BSP said a wCBDC could function much like the current real-time gross settlement system, where each bank maintains an account with the central bank.

Under such a system, balances would be credited or debited based on transactions with other banks.

The main difference is the use of distributed ledger technology, which can enable greater automation, faster processing, and lower transaction costs.

BSP Gov. Eli M. Remolona Jr. said the technology could support improvements in the country’s payments network.

“Wholesale CBDCs can enhance efficiency in the payments infrastructure and develop new financial services that could address evolving needs in the national payments ecosystem.”

The BSP said Project Agila confirmed the technical feasibility of using distributed ledger technology and tokenization for issuing central bank money and enabling off-business-hours inter-institutional transfers through a programmable ledger.

The report said financial institutions saw potential benefits in liquidity management through real-time settlements, automation, and programmability.

The BSP also said a wCBDC could serve as a business continuity solution for PhilPaSS Plus, the central bank’s real-time gross settlement system.

The central bank said wCBDC innovations could strengthen existing payments infrastructure and create opportunities for new financial services, particularly for financial securities settlement and cross-border transactions.

For securities transactions, the BSP said wCBDC adoption could significantly reduce settlement risks by narrowing the time gap between trade execution and final settlement.

The report also identified cross-border payments as a possible use case, citing the potential to reduce transaction costs, shorten processing times, and improve transparency on fees, exchange rates, and transaction status. (Bangko Sentral ng Pilipinas⁠)

Project Agila was conducted in two phases, beginning with system selection and followed by proof-of-concept testing.

In the first phase, the CBDC lifecycle was demonstrated using Corda and Hyperledger Fabric platforms and assessed based on access, security, efficiency, interoperability, and programmability.

The BSP selected Oracle’s Hyperledger Fabric for the proof-of-concept phase, which covered end-to-end tests across the wCBDC lifecycle, use case exploration, functionality, performance, security, programmability, stress tests, and system interoperability demonstrations.

The BSP said the report’s findings will guide the formulation of its CBDC Roadmap.

The roadmap will lay out the central bank’s strategic direction for exploring and developing compelling CBDC use cases.

The Project Agila Management Team recommended continuing wCBDC strategic initiatives focused on tokenized financial securities settlement and institutional cross-border payments.

The BSP said it will also continue engaging with BSP-supervised financial institutions, financial market infrastructures, government agencies, and foreign central banks as it further validates payment system needs.

The report said future work should prioritize security, scalability, and interoperability to prevent fragmentation and support integration with existing payment systems.

It also said risk management standards, supervisory approaches, and regulatory frameworks must evolve to address new vulnerabilities linked to wCBDC technologies and programmable payments.

The BSP said learnings from Project Agila will support a more digital and interconnected payments system as the country studies the role of CBDCs and tokenization in financial markets and cross-border transactions.