BSP eyes more efficient payment system: Cryptocurrencies to the rescue?
“Keeping abreast with the developments in the financial system is the key to safer and more efficient payment system,” the Banko Sentral ng Pilipinas (BSP) highlighted during the conference conducted by BSP Payments and Settlement Office (BSP-PSO) in Manila last 27 July 2018.
In his message, BSP Governor Nestor A. Espenilla Jr. said that, “An efficient retail payment system has the potential to transform the economy in many different ways, it brings business transactions and will generate huge amount of savings as the shift from paper-based to digital instruments is cheaper.” He also added that convenience and speed of payment services are among the most obvious benefits to both consumers and businesses.
Attended by industry representatives, the conference discussed the current state of the Philippine retail payments industry, governance procedures, and how will BSP strengthens the financial institutions against advanced forms of cyber threats.
BSP emphasizes need to put appropriate and innovative systems in place to process financial transactions in the country, in the most efficient way possible, while ensuring their safety and integrity.
BSP also reiterated that establishing appropriate best practices and risk management measures, and fostering reliable market infrastructures are keys to providing a safer, more efficient, and inclusive payments and settlements system in the Philippines.
Espenilla Jr concluded that through BSP’s prudential regulations and guidelines as well as its own organizational transformation, it will push payments to become more seamless between financial institutions within the Philippines and even on a regional basis.
Role of Cryptocurrencies or Virtual Currencies (VCs) in the Philippine Market
Remittances and wire transfers. The Philippines is one of the countries receiving high levels of remittances from overseas. Many Filipinos either receive remittances from abroad, or send remittances to relatives and loved ones within the Philippines. Cryptocurrency could also be the answer to the increasing number of Filipinos shopping online, paying for goods/services online, or transferring funds via digital means. Such remittances and transfers – when facilitated using cryptocurrencies through licensed Exchanges – are relatively more convenient, faster and cheaper compared to traditional remittance and payment schemes. In this case, the average Filipino stands to benefit. The entry of cryptocurrency Exchanges also enhances competition in the remittance and payments market, which can result in lower transaction costs and improved services.
Electronic payments. As a digital value or asset, Cyptocurrencies are easier to use as payment for goods and services that are offered online. This can support the growing e-commerce industry in the Philippines. It can also support the use of social media, mobile technologies and other innovative platforms as delivery channels for financial services.
Financial Inclusion. Cryptocurrencies also have potential to expand financial inclusion. It can be used to facilitate and expand financial services for low-income Filipinos and those living in far-flung areas where traditional financial service providers like banks are unable to reach. This may be possible and profitable, given the cost-efficiency of cryptocurrency transactions as well as Filipinos’ tendency to adopt digital platforms and mobile technology.
Risks involved
While Cryptocurrencies have potential to facilitate delivery of legitimate financial services such as remittances and payments, there are inherent risks:
Prices change quickly. The value of cryptocurrencies are solely driven by supply and demand (i.e. its value increases as more people want to buy, and decreases when there are unpleasant incidents or negative news involving cryptocurrencies). Because of speculations in the cryptocurrency market, prices are unstable and change quickly over time. Users trading, investing and/or accepting cryptocurrencies bear the risk of loss. There is no legal protection available for users in such cases.
Potential for unlawful use. Cryptocurrency transactions have high degree of anonymity. The creators, senders and receivers can easily and effectively transact without knowing each other’s real identities. The pseudo-anonymous and online nature of cryptocurrencies make them attractive to fraudsters, scammers and people intending to do unlawful activities (e.g., money laundering/ terrorist financing). Legitimate users may be affected in case law enforcers clamp down on certain Exchanges.
Prone to theft or loss. Just like any type of asset that is available online, cryptocurrencies may be subject to hacking or theft, and other cyber threats. Users may inadvertently lose their private keys that are used to secure their wallet. Holders must adopt sound security practices and other safety measures to protect their own accounts.
Cryptocurrency transactions are immediate and irreversible. In case of fraudulent, unauthorized or erroneous transactions, there is now way to reverse transactions. Holders will be unable to file complaints or seek recourse since there is no central authority or issuer that backs or guarantees cryptocurrencies.
Cryptocurrencies holdings are not insured. In the Philippines, cryptocurrencies are not considered as deposits. In case of Exchanges fold up or stop operating, holders cannot claim deposit insurance from the Philippine Deposit Insurance Corporation (PDIC).
BSP regulatory approach to cryptocurrencies
Consistent with the Bangko Sentral ng Pilipinas (BSP) approach to innovation, the BSP has adopted a balanced approach to cryptocurrencies by ALLOWING the market to develop and subsequently issuing responsive regulations, as follows:
Warning Advisory on Virtual Currencies dated 06 March 2014. When cryptocurrencies were starting to grow in the Philippine market, the BSP issued an advisory in 2014 to inform the public of the features, benefits and potential risks when dealing with cryptocurrencies.
BSP Circular No. 944 dated 06 February 2017. Following the rise in the use of cryptocurrency for payments and remittances in the Philippines, BSP established a formal regulatory framework for Exchanges – Circular No. 944 dated 6 February 2017. Cryptocurrency Exchanges are companies or businesses engaged in changing cryptocurrency into fiat currency (and vice versa). The act of converting Cryptocurrencynto Philippine money can facilitate payments and remittances. Circular 944 requires Exchanges to register with the BSP as remittance and transfer companies. They are also required to put in place adequate safeguards to address the risks associated with Cryptocurrency. These include control measures to counter money laundering/ terrorist financing (ML/TF), technology risk management systems, and consumer protection mechanisms. BSP also APPROVED Cryptocurrency or VC Exchanges, remittance and transfer companies in the Philippines
Advisory on the Use of Cryptocurrencies dated 29 December 2017. The BSP recently issued another public advisory in response to certain unscrupulous fraudsters/groups that try to entice consumers to “invest” in Bitcoins and other cryptocurrency packages as an Initial Coin Offering (ICO). The advisory warns consumers to be cautious in dealing with cryptocurrencies, to adopt sound security measures to protect their accounts. The advisory also reiterates that BSP does not endorse cryptocurrency as a currency or an investment instrument due to its highly-speculative and risky nature.
The BSP highly encourages existing and prospective users to deal only with BSP- registered Exchanges. The BSP also advised the public to be vigilant about cryptocurrency related transactions and investments in view of potential risks.
BSP views on investing to cryptocurrencies
Because of price volatility, cryptocurrencies holders may incur significant losses when trading or investing in cryptocurrencies. While they were not initially designed to be used as an investment product, some traders/people speculate cryptocurrencies which adds to the price volatility.
As in any other type of investment, prospective investors should know and fully understand cryptocurrencies before speculating or investing in such a product. The public is advised not to blindly follow the crowd, adopt herd mentality, or engage in speculative transactions. The public should exercise extreme caution at all times when dealing with cryptocurrencies products and transactions in general.
This article was originally published at https://www.worldngayon.com/2018/07/cryptocurrencies-to-rescue/