Digital Dollar Project explores CBDC impact on remittances with Western Union

As proposals over a U.S. central bank digital currency (CBDC) continue to generate controversy, the Digital Dollar Project (DDP) is forging ahead with its studies into the offering outside the shores of the country.

The non-profit organization announced that it had completed a pilot study on using a digital dollar in remittance payments to the Philippines. The study, which focused on retail CBDCs, saw the DDP partner with Western Union and Filipino banking giants BDO Unibank to explore the offering.

On the technical side, the pilot was modeled after the non-profit’s Champion Model involving the simulation of a central bank issuing digital dollars to a commercial bank. In turn, the commercial bank provides Western Union access to the CBDC, which it uses to settle international remittances in the Philippines.

Western Union facilitated the currency exchange using a decentralized exchange (DEX). Upon confirmation, Western Union credited the sum to the customers’ account, with proponents saying the use of DEXs would foster competition and lower rates.

The study highlighted a range of benefits under the system, including reduced risks, optimized cost, enhanced customer experience, and improved visibility. With average remittances from the U.S. to the Philippines costing nearly 5% of the total sum, relying on CBDCs could save billions of dollars in annual transaction fees.

“As conversations around CBDC and a ‘digital dollar’ mature, this cross-border payment pilot is a timely step towards understanding the impact and generating highly-applicable data for retail CBDC use cases,” said Jennifer Lassiter, head of the DDP.

“With the support of Western Union and other DDP partners, we will continue to generate the needed research and data to map feasible, real-world use cases that speak to financial institutions, policymakers, and technological partners,” added Lassiter.

Despite the benefits, critics have pointed out potential flaws in the DDP’s proposed system. Firstly, the study did not take into full account the settlement ended in the Philippines, with the report containing only sparse provisions on privacy issues.

In its conclusion, the DDP noted that the pilot provided proof that a digital dollar will not displace the offerings of both BDO Unibank and Western Union but offers the potential “to modernize processes and promote efficiencies.”

Standing against CBDCs

CBDC development in the U.S. has been brought to a grinding halt following stiff opposition from several quarters. Several U.S. states led by Florida has moved to pass legislation against the use of the digital dollar within their territories, saying that it will be a tool for increased government surveillance.

In June, the National Association of Federally-Insured Credit Unions (NAFCU) penned a letter urging the Federal Reserve to stop all experiments into a digital dollar until Congress passes clear legislative guidelines for CBDCs.

A joint report from the Cato Institute and YouGov indicates that only 16% of citizens favor a digital dollar, while a staggering 72% are unfamiliar with the concept of CBDCs.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Exploring micropayments for ‘Remittance Revolution’ at The Bitcoin Masterclasses #6