The Digital Dollar Project (DDP) revealed that a pilot study of remittances to the Philippines using a fictitious retail central bank digital currency (rCBDC) had been successfully completed. The project’s partners were BDO Unibank and Western Union.
A variant of the DDP Champion Model was employed in the project. It involved a fictitious central bank issuing CBDCs to a middle bank, which then allowed Western Union (WU) access to them for remittance to a BDO Unibank client in the Philippines.
WU traded CBDC, trading one dollar for one Philippine peso at a real-time rate determined by a third-party oracle using a decentralised exchange (DEX). WU sent the money to the bank customer’s account after receiving payment confirmation.
Contrary to conventional practice, transactions were entirely funded by central bank money rather than money from commercial banks.
The DEX was the main component of the study. The authors pointed out that the growth of such an exchange might benefit from the advantages of fostering competition and raising transparency.
The majority of transfers to the Philippines, they pointed out, take place when trade is suspended in Manila, so that leg continues to be troublesome.
The study did not address privacy-related issues, however it was mentioned in the paper that distributed ledger technology aids in protecting privacy “by enabling granular management over the level of consumer data sharing.”
The transfer of the message and the transfer of value happened simultaneously and thanks to distributed ledger technology. Value transfer currently takes longer than message transfer because of technology, which introduces counterparty and credit risk.
Finally, the writers stated, “The pilot showed that CBDCs offer a chance to modernise procedures and enhance efficiencies for private-sector businesses and clients, rather than replacing the service offerings of Western Union and BDO Unibank.”
Typically, remittances cost $200 to $300 for each transaction. According to studies referenced in the paper, they will be worth $626 billion overall in 2022.
The United States spent $74 billion in remittances abroad in 2021. 7 % of American households sent money abroad as remittances.
On a $200 transaction, the average cost of money transfers from the US to the Philippines is 4.4%, while bank transfers cost 7.98% on average. The simulated procedure would promote transparency while also saving time and money.
Christopher Giancarlo, a former chair of the Commodity Futures Trading Commission, co-founded the DDP, which debuted its technical sandbox in September. The project received assistance from Accenture as well.
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