While keeping an open mind to the growing popularity and usefulness of cryptocurrencies, Philippine financial regulators are watching out for risks that these digital tokens pose to the financial system and to investors who get sucked into the hype.
Cryptocurrencies or digital tokens are not likely to replace fiat money anytime soon, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. said in forum on cryptocurrencies organized by the Shareholders Association of the Philippines on Monday.
The BSP recognizes the huge potential of digital technology, including cryptocurrencies, which is an emerging medium of exchange globally. However, Espenilla urged the public to take caution against unscrupulous parties perpetrating pyramid schemes in the guise of initial coin offerings.
Given the reliance of cryptocurrencies on full anonymity of those who transact, Espenilla said there was a propensity for these to be used for illegal purposes such as money laundering or terrorist financing. “There’s power in identification,” he said, noting this was why the BSP had been advocating the implementation of a reliable national identification system.
“In keeping with our mandate to promote financial stability, we also aim to address any risk posed by cryptocurrences to the financial system. These risks are not imagined. They arise as cryptocurrency necessarily interplays with the non-digital world, the regular economy, when they are exchanged for peso or other traditional currency,” Espenilla said.
“It is important to note that privately issued cryptocurrency is not legal tender. Unlike fiat money, such cryptocurrencies are not backed or guaranteed by any central monetary authority,” Espenilla said, noting that only the BSP had the sole authority to issue currencies within the Philippines.
Espenilla noted that the BSP was not endorsing cryptocurrencies as medium or exchange or investment vehicle.
“While privately issued cryptocurrencies are gaining popularity, we deem their acceptance as still quite limited. We believe that privately issued digital currencies can not completely fulfill the roles of money as storer of value and as an independent unit of account,” he said.
“Until such time that such cryptocurrencies are able to demonstrate stability, the prospect that they will replace today’s fiat currencies are far off; they are simply too volatile,” he said.
Espenilla said three lessons come to mind as far as the cryptocurrency phenomenon is concerned:
Additional participants in the transaction exponentially increase the value and the value is defined, measured and transferred through consent;
There is power in leveraging digital technology as connector of people;
People always count, which is what drives regulators like BSP to pursue game-changing reforms to foster financial inclusion and improve consumer protection.
In the same forum, Securities and Exchange Commissioner Ephyro Amatong agreed that the high volatility of virtual currencies do not make them a reliable storer or value and that limited acceptance restricts their use as medium of exchange. At the same time, he noted that they are not used to measure the value of goods and services directly, as retailers who accept them still quote prices in fiat currency.
“Understand what you’re investing in. Don’t just go with the flow,” Amatong said.