Currency mix under study

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is evaluating the country’s currency mix as the use of banknotes and coins, particularly low-denomination currencies, continue to taper off as more Filipinos embrace digitalization.

As the sole issuer of currency in the country, BSP Governor Benjamin Diokno said the central bank ensures the timely and ample supply of quality banknotes and coins in the most cost effective and efficient way.

“The emergence of contactless payment technology has revolutionized the retail payment systems. The use of banknotes and coins is expected to taper off over time, particularly the low-denomination appearances,” Diokno said.

According to the BSP chief, the central bank is looking into denominations that have low demand as part of the conduct of currency demand forecast as well as currency planning and production.

“The changing mix of currency denomination should be compatible with the real demand in response to changes in circumstances as the e-payment usage, price level and consumer preferences,” Diokno said.

In 2019, the BSP issued the P20 coin to effectively reduce the cost of replacing unfit P20 paper bills.

Under its Digital Payments Transformation Roadmap, the central bank aims to shift 50 percent of total retail transactions to electronic channels and increase the number of Filipino adults with bank accounts to 70 percent by 2023 as part of efforts to convert the country into a cash-lite economy.

Diokno said initial estimates showed that the share of digital payments to total retail transactions in terms of volume increased to about 30 percent last year from 20.1 percent in 2020 as the COVID-19 pandemic served as a catalyst.

“The assessment of the actual impact of digitalization to the Philippine economy is being finalized and will soon be released by the BSP but what we can share is that the level of digitalization of retail payments has risen exponentially in a span of 12 months,” the incoming secretary of the Department of Finance (DOF) said.

The central bank continues to strengthen its currency forecasting methods and capabilities, leveraging rapid technological advancements in the global payment system.

“The BSP continuously develops its currency forecasting methods and capabilities. This is in line with the BSP’s broader efforts to promote price stability and maintain the integrity of Philippine currency,” Diokno said.

To ensure that its currency forecasting capabilities are aligned with global best practices, the BSP carries out periodic reviews of its forecasting models; and conducts specialized learning and development programs on currency forecasting and mandatory econometrics training for its forecasting team.

As the sole issuer of Philippine currency, the BSP is expected to provide undisrupted, responsive, and strategic currency services throughout the entire cash cycle, which begins with forecasting demand.

The BSP recently organized a learning session on “Currency Forecasting in the Age of Digital Transformation” with speakers from the Bank of Thailand and Reserve Bank of Australia discussing shared experiences on currency matters.

The webinar also covered similarities in forecasting approaches among central banks and the common goal of finding the right balance between physical and digital cash usage to ensure availability of various payment options.

It was noted during the webinar that there is continuous growth in currency in circulation, driven by the demand for higher denomination banknotes. The currency in circulation continued to rise amid the pandemic and despite increasing digitalization of retail payment systems.