Singapore authority assesses ‘purpose-bound’ digital money

The Monetary Authority of Singapore (MAS) has published an analysis of its explorations into potential use cases – including uses for government agencies – of what it refers to as ‘purpose-bound’ digital money.

The publication is likely to catch the attention of governments worldwide that are looking to identify and assess specific ways in which a retail central bank digital currency (a CBDC that would be available for the general population) could be beneficial. But MAS points out that its explorations are also applicable to the realm of privately issued money, which could include tokenised bank deposits or ‘securely backed’ stablecoins.

Purpose-bound money (which the report abbreviates to as ‘PBM’) is described by MAS as building on the concept and capabilities of programmable payments (the automatic execution of payments once a pre-defined set of conditions are met) and programmable money (the possibility of embedding rules within the medium of exchange itself that defines or constraints its usage). PBM, the paper explains, specifically refers to a protocol that specifies the conditions upon which an underlying digital currency can be used, with a crucial aspect being that the ‘underlying digital medium of exchange bound within it comes embedded with programmable logic that makes it possible for use across different platforms and systems’.

Experimentation remains ongoing. PBM is being trialled this week for the purchase of food and drinks at the 2022 Singapore FinTech Festival. At the event, which is being held from 2-4 November, Singapore government tech agency GovTech’s Open Government Products (OGP) division and DBS Bank are testing PBM’s use for government disbursements to ‘selected individuals’.

Trial participants are able to use RedeemSG vouchers at participating outlets, with merchants directly receiving the underlying digital SGD (Singapore dollar) for the vouchers redeemed. RedeemSG is a voucher system developed by OGP to help Singapore government agencies to create, issue and track redemption of vouchers.

Project Orchid’s first phase focus

MAS announced that it planned to build the infrastructure and ‘technical competencies’ for a digital Singapore dollar (SGD) through an initiative called ‘Project Orchid’ at the previous Singapore FinTech Festival 12 months ago. This is despite consistently concluding that the case for a retail CBDC in Singapore, which has a population of about 5.6 million people, is insufficiently compelling.

MAS’s paper, which is titled ‘Project Orchid: Programmable Digital SGD’, features three further exploratory case study areas.

Also at the Singapore FinTech Festival, state-backed investment company Temasek, Fazz Financial and Grab are testing the issuance of PBM as ‘commercial digital vouchers’ to participants. People can use these vouchers through their preferred wallet apps to make purchases at participating merchants.

Meanwhile the Central Provident Fund – Singapore’s mandatory social security savings scheme, which is funded by contributions from employers and employees – and OCBC are to test the use of PBM for funds disbursement from government agencies to recipients who do not have a bank account. The trial will be conducted in a ‘controlled environment with selected participants’.

In the fourth use-case trial, SkillsFuture Singapore (SSG – a statutory board under the Ministry of Education) and United Overseas Bank are to test the use of PBM to enhance the former’s credit disbursement process, enabling grants to automatically be released to participating training providers when eligibility conditions are met.

Project Orchid: what’s next?

The paper, which runs to 55 pages, delves into design considerations for implementing a programmable digital SGD for the potential use cases.

It breaks down PBM-based architecture into four distinct components: digital currency backing; a PBM ‘wrapper’ implemented in the form of smart contract code that specifies the conditions upon which the underlying digital currency can be used; PBM infrastructure; and the PBM wallet.

‘Project Orchid and its experiments are a step forward in advancing the global learning on the possibility of programmable money and payments,’ MAS chief fintech officer Sopnendu Mohanty writes in the paper’s foreword.

‘Rather than building a CBDC ledger first, the project has taken a user-driven approach instead,’ he explains. ‘The first phase of the project aims to uncover a potential use cases for a programmable digital SGD and the infrastructure required. The subsequent phase of Project Orchid will investigate the optimal ledger technology to issue a CBDC as well as its integration to existing financial market infrastructure. The project seeks to approach the subject of enabling an innovative, interoperable and inclusive digital currency infrastructure in an open-sourced manner, with a view of harnessing collective contributions of the community and contributing the learning points to the global fintech community.’

Future research areas include the integration of a common QR code system, the fungibility of digital currencies amongst different issuers, transactional privacy, offline payments, digital wallet integration and future trials where individuals could have options to define conditions for transfers and ‘be PBM creators in effect’.

FURTHER READING

’Singapore authority kicks off asset tokenisation experiments’ – our news story (17 June 2022) on MAS kicking off a ‘collaborative initiative’ (called ‘Project Guardian’) with the private sector to explore the opportunities and risks of asset tokenisation

‘Singapore launches GovCash service to replace 500,000 cheques’ – our news story (22 February 2022) on a service involving the Central Provident Fund, GovTech and the Oversea-Chinese Banking Corporation (OCBC) to help Singaporeans receive government payments more easily

‘“Global CBDC Challenge” winners named in Singapore’ – our news story (12 November 2021) on the three winning teams of the ‘Global Central Bank Digital Currency (CBDC) Challenge’ being revealed during last year’s Singapore FinTech Festival (MAS’s managing director, Ravi Menon, said that Project Orchid would “build on the rich findings” from the competition)

‘Singapore preps CBDC tech despite “no strong case” for digital currency’ – our news story (9 November 2021) on MAS’s Ravi Menon delivering a speech during which he said that ‘the case for a retail CBDC in Singapore is not urgent’ but that the authority ‘at the same time recognises there could be potential benefits offered by innovative retail CBDC solutions in the future’ (the start of Project Orchid)