[B-SIDE Podcast] Central bank digital currency deployment: Insights from IMF

The Bangko Sentral ng Pilipinas (BSP) needs to be properly prepared to deploy central bank digital currencies (CBDCs), as these virtual currencies might pose risks to banks, according to the International Monetary Fund (IMF).

Tommaso Mancini-Griffoli, deputy division chief in the Monetary and Capital Markets Department at the IMF, said in an interview during the IMF Spring Meetings in April that if consumers find a more convenient payment method, such as using CBDCs, they might opt not to deposit money in banks.

“If there is an alternative that allows us to make payments perhaps even more easily, and that is perhaps even safer as a store of value, we might switch to that. CBDC might well be that form of money that is just as liquid and convenient for me to make payments, perhaps more so,” Mr. Mancini-Griffoli told BusinessWorld reporter Keisha B. Ta-asan.

“So, if that’s the case, people may move their money out of the banks into CBDC. That would cut back on bank funding, and will cut back on the bank’s ability to provide credit to the economy and that is a problem.”

“It’s important that central banks are attentive to this and manage these risks carefully. [They] can set limits on how much people can hold in their CBDC wallets or [they] can have fees on wallet transactions if [a person] holds above a certain level,” he added.

The Philippine central bank has been testing the use of wholesale CBDCs among selected financial institutions through its CBDCPh project.

The pilot project was initiated in 2022 and is set to continue until 2024. The BSP employs a test-and-learn approach within a sandbox environment to gain a deeper understanding of the possibilities and risks associated with wholesale CBDC. This effort also aims to bridge gaps within the national payment system.

The project encompasses various aspects, including policy and regulatory considerations, technological infrastructure, governance and organizational requirements, legal matters, payment and settlement models, reconciliation procedures, and risk management.

“A CBDC is new and involves new technologies. It also involves a type of work that central banks are not necessarily used to, which is building products that will eventually be used directly by households and firms,” Mr. Mancini-Griffoli said.

“Central banks that are serious about doing deploying and testing CBDCs need to understand these challenges and need to tool up in order to deliver. That’s a little complicated to do, but certainly not beyond the reach of central banks,” he added.

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