BSP plans CBDC for government bond settlements

The Bangko Sentral ng Pilipinas (BSP) is planning to use its upcoming wholesale central bank digital currency (CBDC) to facilitate the settlement of government bonds in the Philippines.

Local news outlet GMA News Online reported on February 2 that the BSP is currently working to develop a strategic CBDC roadmap based on insights from Project Agila, the central bank’s first CBDC pilot.

“What we are thinking of doing next is to focus on wholesale CBDC settling government bonds, [because] the Bureau of the Treasury moved ahead with their pilot of the tokenized treasury bonds. It just lacked a settlement instrument, so we will be providing that with CBDC,” BSP Deputy Governor Mamerto Tangonan said.

In 2023, the central bank announced the revival of Project Agila, which was initially introduced in 2022. The CBDC project was completed for testing in 2024, with participation from several financial institutions, including BDO Unibank Inc., China Banking Corporation, Land Bank of the Philippines, Rizal Commercial Banking Corporation, Union Bank of the Philippines, and Maya Philippines Inc.

Additionally, the Bureau of the Treasury (BTr) launched Philippine peso-dominant Tokenized Treasury Bonds (TTBs) with the goal of raising PHP10 billion ($169 million) from the domestic bond market. These bonds were issued as digital tokens and are managed using the BTr’s distributed ledger technology (DLT).

Now the BSP is exploring the use of wholesale CBDCs for interbank payments, securities transactions, and cross-border payments involving commercial banks and other financial institutions. However, Tangonan has not specified a timeline for the second proof of concept, as the agency needs to expand its scope and collaborate with additional participating banks.

“We need to broaden that to more institutions so that all of us will learn from the next proof of concept, especially when we need to test the settlement of government bonds,” he said.

What are CBDCs?

CBDCs, or central bank digital currencies, are blockchain-based tokens issued by a country’s central bank. While traditional digital currencies are decentralized, CBDCs are regulated and managed by an official financial authority of the nation.

There are two types of CBDCs: retail and wholesale. Retail CBDCs are digital currencies intended for public use. In contrast, wholesale CBDCs are digital tokens issued to commercial banks and other financial institutions. They are designed to facilitate interbank settlements, tokenized securities transactions, and cross-border payments, among other functions. Wholesale CBDCs improve liquidity management and reduce settlement risks compared to their retail counterparts.

Watch: Finding ways to use CBDC outside of digital currencies