Philippine central bank concludes wholesale CBDC testing

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The Bangko Sentral ng Pilipinas (BSP) announced it has concluded testing for Project Agila, an initiative that allows financial institutions (FIs) to facilitate large-value fund transfers beyond traditional banking hours.

According to the BSP, this capability extends to evenings, weekends, and holidays, leveraging open-source distributed ledger technology (DLT) supported by Oracle Cloud Infrastructure.

BSP Governor Eli Remolona Jr. highlighted the transformative potential of the project, stating, “Wholesale CBDCs are expected to enhance liquidity management, reduce settlement risks, and support financial stability.”

The central bank said the pilot phase involved rigorous testing of functionality, performance, security, and programmability, ensuring the system’s readiness to enhance the country’s financial ecosystem.

Harnessing wholesale CBDCs

Project Agila represents a proof-of-concept (PoC) for the central bank digital currency (CBDC) at the wholesale level. This digital form of currency is denominated in the Philippine peso and issued directly by the BSP. Wholesale CBDCs are envisioned to streamline interbank payments, cross-border transactions, and securities settlements.

“Insights from this project will guide the BSP’s CBDC roadmap,” Remolona emphasized. “Our goal is to leverage new technologies to further enhance the efficiency and resilience of the national payment system.”

Speaking with CoinGeek, Atty. Rafael Padilla, Co-Founder and Trustee of BlockDevs Asia, said that the initiative could potentially optimize liquidity within the Philippine financial system.

“If it allows financial institutions to facilitate large-value fund transfers even during off-business hours, then it could significantly improve liquidity management,” Padilla remarked.

Implications for cross-border transactions

DLT, a cornerstone of Project Agila, promises substantial benefits for cross-border trade and international remittances. Padilla noted that by employing DLT, the Philippine financial system can process large-value cross-border transactions and remittances 24/7. This capability is expected to bolster reliability and efficiency in the country’s financial networks.

Emman Navalan, Founder and CEO of Viridian Technologies, emphasized the potential for faster, more secure transactions.

“Previously, intermediaries carried no inherent value. With CBDCs, the digital currency is of value, ensuring secure, almost instant settlements,” Navalan explained, adding that cross-border payments could become cheaper and faster, provided the technology is adopted by remittance centers and partner banks.

Boosting competitiveness of local financial institutions

One of the most anticipated outcomes of Project Agila is its ability to enhance the competitiveness of Philippine financial institutions. By enabling 24/7 liquidity for large-value fund transfers, wholesale CBDCs could level the playing field for Philippine banks compared to regional peers.

Navalan highlighted the importance of infrastructure development in fully realizing the benefits of CBDCs.

“As an archipelago, the Philippines faces unique challenges. The infrastructure must be robust enough to support smaller financial institutions across islands,” he said, underscoring the need for education and capacity-building initiatives.

Padilla concurred, emphasizing that a competitive payment ecosystem requires continuous investment in technology and strategic partnerships.

Challenges in scaling CBDC technology

Despite its promise, the implementation of wholesale CBDCs is not without challenges. Padilla noted that it’s too early to assess the risks and scaling issues, as the BSP has yet to publish the results of Project Agila.

Navalan pointed to adoption as a key hurdle, saying “The goal is to make the platform easy to integrate and use, especially for smaller financial institutions and non-bank entities. This will determine its scalability and long-term success.”

Potential benefits beyond banking

The ripple effects of a resilient national payment system powered by CBDCs extend beyond traditional banking. Industries like cross-border trade, asset management, and real estate are poised to benefit from faster and more secure transactions.

“We expect cross-border trade to grow, contributing to the overall economy,” Padilla stated, adding that the ability to settle payments almost instantly with a digital peso offers a level of security and efficiency unmatched by traditional methods.

Navalan shared similar sentiments, envisioning applications in corporate treasury management and discreet, high-value transactions.

“Imagine buying properties without the need for cash or checks that can be forged. CBDCs ensure that the value is inherent and secure,” he said.

Shaping the future of Philippine finance

Project Agila’s completion marks an important milestone in the BSP’s journey toward a more efficient and resilient financial system. As the central bank evaluates the project’s outcomes, stakeholders remain optimistic about its transformative potential.

“Our goal is to leverage new technologies to further enhance the efficiency and resilience of the national payment system,” Remolona said.

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