CBDC gold with blue background

IMF set to collaborate with the Philippines on wholesale CBDC project

The International Monetary Fund (IMF) has announced a planned collaboration with Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, to create a central bank digital currency (CBDC).

The IMF said its role will be to advise the country’s central bank on the technicalities involved in creating the CBDC. Apart from offering technical help, the IMF noted that it will be involved in training BSP staff on the application of digital versions of the currency.

According to the public disclosure, the IMF’s collaboration with the BSP is strictly for developing a wholesale CBDC, a move that the Philippines has been exploring since May. The central bank tilted towards a wholesale CBDC on the grounds that retail CBDCs are considered to have limited appeal given the multiplicity of digital payments in existence in the country.

Both parties confirm that a key reason for their decision to explore wholesale CBDCs is their potential to revolutionize cross-border transactions. The latest research indicated that the Philippines was among the top 5 leading recipients of inbound remittances, which triggered the central bank to explore the offering of a transnational CBDC.

Apart from the use in cross-border transactions, the IMF and the BSP are keen on exploring CBDC usage in the equities market. Both parties believe that a wholesale CBDC will be key in reducing the resultant counterparty risk and may solve the challenge facing automated intraday liquidity facilities.

Despite the array of benefits that the wholesale CBDC could offer the Philippines, the IMF highlighted potential challenges. The Fund stated that since the Philippines is on the Financial Action Task Force (FATF) list for advanced money laundering, the government will need to implement stiffer anti-money laundering (AML) rules.

“The central bank has also acknowledged the risk of a more significant role by the central bank reducing interbank activity, which might detract from progressing capital market developments in the country,” read the report.

Skeptics won’t touch CBDCs with a ten-foot pole

For all the advantages of CBDCs, skeptics remain wary of digital iterations of legal tender over several perceived flaws. There remains the nagging issue of privacy, with some claiming that CBDCs might become tools of state surveillance over citizens.

Others have opined that CBDCs will lead to a spike in negative interest rates, while others argue that retail CBDCs could affect the cash flow of commercial banks. Economists have reeled out grim predictions following the contagion effect if commercial banks cannot issue customers loans.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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