The World Bank has said the Philippine government needs to convert economic growth into more jobs for ordinary Filipinos so as to succeed in reducing widespread poverty. But some tech startups see virtual currencies as key to improving financial inclusion as well. (Photo credit: JAY DIRECTO/AFP/Getty Images)
Earlier this month, the Filipino government issued regulatory guidelines concerning Bitcoin use in the country. The guidelines were welcomed by startups in the country, as official clarity and endorsement of the cryptocurrency are expected to help companies that had previously operated in a regulatory gray area.
In its Guidelines for Virtual Currency (VC) Exchanges, the Bangko Sentral stated that it “recognizes that Virtual Currency (VC) systems have the potential to revolutionize delivery of financial services, particularly for payments and remittance, in view of their ability to provide faster and more economical transfer of funds, both domestic and international, and may further support financial inclusion.”
The Bangko Sentral also noted that it considers virtual currencies at risk for use in money laundering and terrorist financing and said it will not endorse Bitcoin or other VCs as currency, given that they are not issued or guaranteed by a central bank or backed by commodities.
The guidelines instituted reporting and security standards, though these will likely need to be expanded as the use cases for Bitcoin grow in the country.
“The circular is a big first step forward,” said Miguel Cuneta, cofounder of Satoshi Citadel Industries (SCI) and Bitcoin Organization Philippines (BOP). The latter group has held numerous discussions with Bangko Sentral during the past several years on Bitcoin and cryptocurrencies’ potential roles in the Philippines’ development.
“The BSP knows that Bitcoin as a technology will be almost impossible to regulate, and they basically sat down with us and hammered down the best possible way to regulate, and in effect, legitimize, the industry itself,” Cuneta said. “What they did was to regulate the points of entry and exit of Bitcoin and other crypto to Philippine pesos, which makes a lot of sense on their end. Of course, there is also consumer protection and anti-money laundering to consider, and they made provisions for that, too.”
Out of the shadows
However, some questioned whether the regulations were expansive enough. The government circular primarily addresses Bitcoin’s use in remittances, but leaves out other uses – a gap which could create long-term problems in the fintech industry, according to Luis Buenaventura, chief technology officer of Bloom Solutions (formerly head of product at SCI) and author of the book “Reinventing Remittances With Bitcoin.”
“I do fear that new concepts that come down the road will be stifled by this,” Buenaventura said. “I fear it will deter people from using blockchain and Bitcoin in their startups, or they’ll fly under the radar.”
Buenaventura said that compliance standards for remittance companies are stringent, and small startups that use Bitcoin in their processes but don’t provide remittance services will likely be unwilling or incapable of putting resources toward meeting those standards. Those that don’t abandon the concept may find themselves in the same gray zone the recent discussions and circular were designed to eliminate.
The push for regulatory clarity was driven “primarily so Bitcoin could come out of the shadows,” Buenaventura said. “We weren’t operating in the shadows because we wanted to.” Without official government acknowledgement of Bitcoin and other cryptocurrencies, Buenaventura said startups who use the technology often struggled to work with traditional financial institutions.
“Every Bitcoin startup in the entire region has problems with their banks,” he said. In some cases, access to funds would be paused and in others, the businesses would not be given access to banking services period. “One of the excuses they give is, ‘No legislation covers you guys, so we’re not comfortable covering you,’” Buenaventura said.
That’s why the circular represented real progress, even if it was narrow in its scope. As Sam Kaddoura, chief financial officer at SCI, put it, the official regulation “legitimizes Bitcoin.”
Buenaventura also said it was significant, given that the government is expending resources to address issues that cover a very small sector of businesses at the moment.
“They’re making a long-term bet that this will have some effect down the road,” he said. “I guess we’re a noisy minority.”
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