The Philippine Star recently reported that Benjamin Diokno, Governor of the Bangko Sentral ng Pilipinas (BSP), said the central bank would keep an eye on cryptocurrencies, especially their potential use in terrorism funding. The archipelago country has a large unbanked population, creating a demand for cryptocurrencies and blockchain-based fintech.
Diokno expressed concerns over cryptocurrency, especially its role in terrorism financing. The Philippines contends with an Islamist insurgency, the Maute group, which resorts to kidnappings for ransom and clashed with security forces in the 2017 Battle of Marawi.
Echoing his remarks, BSP Deputy Governor Diwa Guinigundo expressed skepticism over cryptocurrency as a substitute for fiat money, as a medium of exchange, and as a store of value. He admitted that cryptos and blockchain can be useful for peer-to-peer (P2P) settlements, but added that they also effectively allow users to sidestep the traditional banking system.
“Game theory dictates possible dysfunction when there is market breakdown, when everyone may distrust one another,” Guinigundo reasoned. “There cannot be a total disregard for a central bank or a third party that provides lender of last resort facility.”
The central bank’s warning comes as the use of cryptocurrencies in the Philippines continues to rise. The PhilStar previously reported that crypto transactions in the Southeast Asian nation skyrocketed from US$189.18 million in 2017 to US$390.37 million in 2018, according to the BSP’s Technology Risk and Innovation Supervision Department.
Those transactions include conversions from the Philippines peso and other fiat currencies to cryptocurrencies and vice versa, as well as inbound international remittances facilitated through cryptocurrencies.
To balance encouraging innovation with risk mitigation, Guinigundo said the central bank prefers to use regulatory sandboxes to manage the applications of emerging technologies.
The BSP in February 2017 issued a circular, mandating that cryptocurrency exchanges register with the central bank as remittance and transfer companies. These firms were required to set up safeguards for consumer protection as well as anti-money laundering and counter financing of terrorism (AML/CFT) measures.
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