INCHEON, South Korea—If more Pinoys go cashless, the national government could see its costs decrease by way of lower cash printing and coin minting costs, according to the Bangko Sentral ng Pilipinas (BSP).
In a session here on Wednesday, BSP Governor Felipe M. Medalla said the BSP spends quite a significant amount on cash. This is considered a subsidy that makes cash seem cheap for the average Filipino.
However, in reality, Medalla said cash is not cheap, especially where the government is concerned. This is the reason for the government’s push for financial inclusion by way of financial technologies.
“Let me first say that cash looks cheap because the central bank absorbs the cost. It costs P10 to make a P20 coin so quite a bit of subsidy of the central bank on the physical cash system. So in a sense, if you literally reduce the demand for cash, the central bank cost for minting will go down,” Medalla said.
Nonetheless, Medalla admitted that more needs to be done to encourage the use of financial technologies among Filipinos. It has to do with making financial technology costs lower and investing in infrastructure.
Medalla said bringing down or removing the cost of money transfers has already been put forth as one solution. This has already been supported by the banking industry, especially since the BSP agreed to bring down the reserve requirement ratio should this happen.
The BSP governor said not all the solutions can be borne on the shoulders of the private sector and consumers. Efforts from the government are needed, especially in improving digital connectivity nationwide.
Data gathered by the BSP showed that for CARD bank, half of its transactions were still assisted transactions. This means the technology is brought to customers in order for them to access their funds, which is also common practice for small banks.
From a regulatory perspective, Medalla said the BSP helps by creating “sandbox” regulations for small banks that allow them to cope while they are still growing. Once they become larger banks, they can be subjected to greater regulation from the central bank.
“What the government can do is improve the signal. There’s nothing that the banks can do about the signal,” Medalla said. “Clearly, there are many things that government can do; it’s the signal and making sure that poor people, when they’re hit by disaster, have a fallback position.”
Multilaterals’ role
Given this task, Medalla said, multilateral development banks like the Asian Development Bank (ADB) should continue extending support for financial inclusion as well as infrastructure support.
He said institutions like ADB should also ensure that loans they make available to countries should help attain development goals such as poverty reduction, financial inclusion and addressing infrastructure gaps.
“My wish is that they do not displace lending for infrastructure because that’s very important too. Raising productivity by including infrastructure. It is still a timeless way of making people better off,” Medalla said.
Based on data from ADB’s Independent Evaluation Department, the Manila-based multilateral’s financial sector portfolio in the past 10 years accounted for 12 percent of ADB’s operations. Most, or 69 percent of these operations, were sovereign in nature.
Support for inclusive finance accounted for 51 percent, followed by infrastructure finance and access to capital markets at 39 percent and financial sector inclusion at 5 percent. Support for climate finance remained limited at 6.5 percent of the annual target lending.
Earlier, BSP and the Japan International Cooperation Agency (Jica) said small and medium enterprises may now be able to tap the financial markets through the Credit Risk Database (CRD).
Medalla said that while SMEs are often referred to as the backbone of the Philippine economy, the sector is beset by challenges, particularly in accessing financing.
He said the problems of the SME sector have been compounded by “bad policies” such as mandating banks to lend to them, leading to “one-size-fits-all” solutions that do not work.