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Digital Dollar Project
The Digital Dollar Project (DDP) recently reported the successful completion of a pilot study exploring remittance payments to the Philippines through a simulated retail central bank digital currency (rCBDC). Key partners for this project were Western Union and BDO Unibank.
The Champion Model
Through a simulated central bank in the DDP's Champion Model, CBDCs were issued to an intermediary bank. This bank then allotted Western Union access to it for remittance purposes to a customer of BDO Unibank residing in the Philippines. A decentralized exchange (DEX) facilitated by Western Union converted the dollar CBDC into its Philippine peso equivalent, with the exchange rate determined by an independent oracle in real-time.
The Role of Central Bank Money
Breaking away from common practice, the entire transaction process leveraged central instead of commercial bank money. The DEX featured prominently in the study, hinting at potential benefits like enhanced competition and transparency. However, timing complexities arise since most remittances to the Philippines occur when trading is inactive in Manila.
Privacy Concerns
While the study did not delve into privacy concerns, it acknowledged the privacy-preserving capability of distributed ledger technology, which allows for precise control of consumer data sharing levels.
Impact on Speed and Risk
The utilization of distributed ledger technology enabled the simultaneous and swift transfer of both message and value within seconds. This is a marked improvement over existing technology where value transfer is delayed, leading to counterparty and credit risks.
Improved Remittance Process
With remittances typically ranging from $200 to $300 and reaching a total of $626 billion in 2022, an optimized remittance process can significantly save time and money, and promote transparency. The US alone accounted for $74 billion in remittances in 2021, with 7% of households sending money abroad. On an average $200 transaction, remittances from the US to the Philippines cost 4.4%, while bank transfers average at 7.98%.
The DDP, a joint venture by former Commodity Futures Trading Commission Chair Christopher Giancarlo and Accenture, introduced its technical sandbox in September.
