The Philippines’ digital transformation could make it a new crypto hub
Binance, the cryptocurrency exchange, has recently acquired a virtual asset service provider (VASP) of the Bank of Spain in order to operate in the country. In its ambitious expansion plans as the cryptocurrency exchange persists despite the global leap and market crash in the cryptoverse, there is another country Binance is looking to: the Philippines.
In June, Binance CEO Changpeng Zhao told a press briefing in Manila that the exchange was looking to obtain a VASP license in the Philippines. In addition to VASP, Binance wants to obtain an e-money issuer license from the country’s central bank, Bangko Sentral ng Pilipinas (BSP). While the first license would allow the platform to offer crypto asset trading and conversion services in the Philippines, the second will allow it to issue e-money.
The Philippines is the 36th largest economy in the world by nominal GDP and the third largest in Asia, according to to World Bank data. Despite its small size, the country is considered one of the fastest growing economies in the world due to its new industrialization, marking a distinctive shift from agriculture to services and manufacturing.
Cryptocurrencies are extremely popular in the Philippines due to the economic shift the country went through when digital assets started gaining popularity. A recent survey has revealed that the Philippines ranks 10th in cryptocurrency adoption, with over 11.6 million Filipinos owning digital assets.
This is also evidenced by the fact that according to to data from ActivePlayer.io, 40% of all popular players Axie Infinity play-to-earn (P2E) game came from the Philippines. In fact, the game has also been a game-changer financially for many citizens in the country.
Related: How blockchain games create entire economies on top of their gameplay: report
Cointelegraph spoke to Omar Moscosco, co-founder of AAG Ventures – a P2E guild based in the Philippines – about the Philippines’ potential for mass adoption of digital assets. He said, “The Philippines is home to a large unbanked and underbanked population, with approximately 66% of this total population lacking access to traditional banking services or similar financial organizations.”
He added that COVID-19 has triggered a digital transformation in the country, saying:
“The Philippines recorded the highest number of new users of digital payment methods with 37%. The regional average was 15%. Thus, digital payments accounted for 20% of total financial transactions in the country in 2020, compared to 14 % in 2019. Additionally, in 2020, e-money transactions totaled PHP 2.39 trillion ($46.5 million), an increase of 61% compared to 2019.”
Jin Gonzalez, chief architect of Oz Finance – a decentralized finance (DeFi) service provider based in the Philippines – told Cointelegraph the impact Binance’s entry into the country would have for the market. He said, “Binance already receives a large amount of Philippine peso volume for its peer-to-peer (PHP/USDT) service. It is also the exchange of choice for Filipinos due to the favorable rates it charges compared to local service providers. Obtaining a BSP license will only legitimize its operation and strengthen its position in the market. »
However, global concerns have begun to emerge regarding the anti-money laundering (AML) and anti-terrorist financing (CFT) frameworks that VASP licensed companies use. The central bank of Ireland has published a newsletter for VASPs which is aiming assist candidate companies to strengthen their VASP registration application and AML/CFT frameworks accordingly.
This development was good for the growing ecosystem, as it addresses concerns that would inevitably arise when considering the integration of digital assets into the existing financial ecosystem and economy. At the same time, Hong Kong introduced a licensing regime for VASPs in June this year, which imposes legal AML/CFT requirements on companies wishing to operate in the country.
Central government keen to push use cases
The regulatory landscape in the Philippines is still at a fairly nascent stage as there are no stringent restrictive regulations for businesses and individuals at the moment. In fact, the country’s government, together with its central bank, seems eager to embrace blockchain technology and implement its use cases in various sectors of the economy. González said:
“Currently, the BSP regulations are in place, but the SEC regulations have yet to be passed. Regardless, the Philippines has an open stance on digital assets, and their intent to regulate is aimed at to balance protecting investors with promoting the advancement of technology.PH regulators, particularly the Central Bank, maintain a progressive stance on the adoption of digital assets.
Earlier this year, in May, the Philippine government’s Department of Science and Technology launched a blockchain training program for researchers in the department. Through the training program, the government is seeking blockchain adoption in areas such as healthcare, financial support, emergency aid, passport and visa issuance, trademark registration and records. government, among others.
The Philippines-based UnionBank has also launched a payment-focused stablecoin indexed to the Philippine peso which aims to foster financial inclusion in the country. It attempts to link the country’s major banks with rural banks and bring financial access to previously unbanked parts of the country. González said:
For now, he seems content to observe how bank-issued stablecoins (such as PHX by UnionBank) will advance financial inclusion.
However, even with the opening up of the government, some entities are closely monitoring irregularities in the operation of digital asset companies. Local policy think tank Infrawatch PH has sent a letter to the Department of Trade and Industry (DTI) of the Philippines asking them to conduct an investigation against Binance for promotions in the country without having an appropriate permit for the same.
the DTI replied to this letterputting the ban out of the question by stating that it has set no clear guidelines for the promotion of digital assets.
The launch of the CBDC could be a game-changer for the country
As the majority of Filipino citizens are unbanked and therefore operate in a fairly unregulated manner in areas such as taxation, the introduction of a central bank digital currency (CBDC) in the economy could be a major step in the digital transformation that the country is currently experiencing.
Moscoso said, “CBDCs can leverage mobile technologies to provide increased access to financial services to rural households and other segments underserved by the current banking system. The central bank expects at least half of payments to eventually be made digitally by 2023.”
Related: Crypto in the Philippines: Necessity is the Mother of Adoption
He added that around 70% of adults would use a digital account for transactions at this time, giving consumers additional options that can keep them away from loan sharks.
Despite the current bear market, the Philippines still has a forward-thinking outlook on adopting digital assets and blockchain-based business models. This prospect puts the country in a good position, with the potential to become a cryptocurrency hub.
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