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Singapore authority unveils next steps for digital money initiatives

Singapore FinTech Festival 2023: MAS managing director Ravi Menon (on stage in the top two images) and Singapore’s deputy PM and co-ordinating minister for economic policies Heng Swee Keat touring the exhibition (bottom two images) | Credit: Singapore FinTech Festival

The Monetary Authority of Singapore (MAS) has announced updates and next steps on digital money initiatives, including the publication of a ‘blueprint’ setting out the infrastructure required for a digital Singapore dollar.

MAS, which has been hosting the Singapore FinTech Festival this week, is planning to expand digital money trials involving the private sector and to issue a ‘live’ central bank digital currency (CBDC) for wholesale settlement.

The three forms of digital money that MAS is ultimately promoting are tokenised bank liabilities, wholesale CBDCs and regulated so-called stablecoins.

MAS’s long-serving managing director Ravi Menon, who is preparing to retire from the city-state’s public service, gave a keynote speech during the high-profile three-day event during which he described the authority’s goal as “nothing short of audacious – to collaborate with the financial industry and international partners to shape the financial ecosystem of the future.”

Menon, who has spent more than a decade at the helm of fintech-savvy MAS and will step down as managing director on 31 December, described “three key outcomes we want to collectively achieve”: instant payments – “making cross-border payments cheaper, faster and more efficient”; seamless financial transactions – “enabling financial assets to be transacted seamlessly across multiple trading venues through digital assets, digital money and interoperable digital networks”; and a ‘trusted sustainability ecosystem’ – “fostering a trusted data and disclosure ecosystem to support sustainable finance for the world’s transition to net-zero.”

RELATED ARTICLE Monetary Authority of Singapore names new head as Menon steps down – our article (5 September 2023) on news that Ravi Menon was preparing to retire from the city-state’s public service and that he would be succeeded by Chia Der Jiun

‘Orchid Blueprint’ unveiled

Updates on ‘Project Orchid’ and ‘Project Guardian’ were among the succession of announcements about multi-year digital money projects made by MAS during the event.

Project Orchid is examining various design and technical aspects pertinent to digital Singapore dollar, from its functionalities to its interaction with existing payment infrastructures. Two years on from its launch, MAS has unveiled what it calls the ‘Orchid Blueprint’. This 41-page document print builds on learnings from private-sector trials and identifies a quartet of infrastructure ‘building-blocks’ for what the authority describes as the ‘sound’ use of digital money in Singapore.

Those four building-blocks are: a settlement ledger to record digital money transfers ‘with supporting features such as native programmability and atomic settlement of digital tokens’; a ‘tokenisation bridge’ to connect existing account-based settlement systems with ledgers compatible with tokenised forms of digital money (tokenisation is the process of digitally representing assets or items of value through a smart contract on a blockchain); a ‘programmability protocol’ to use ‘purpose-bound money’ as a common protocol to specify the conditions for the use of digital money; and a ‘name service’ in order to ‘translate between unwieldy wallet addresses and alternative name identifiers that are readable and meaningful for verification’.

Purpose-bound money has previously been 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). It 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’.

RELATED ARTICLE Singapore authority assesses ‘purpose-bound’ digital money – a news story (2 November 2022) on the publication of a 55-page paper, ‘Project Orchid: Programmable Digital SGD’, one year ago

In-field experimentation expands

MAS is now expanding Project Orchid’s in-field experimentation in order to ‘test the broad applicability’ of purpose-bound and digital money. This will see four new trials involving the private sector to examine infrastructure components and commercial models.

The first trial focuses on tokenised bank liabilities. It sees OCBC and UOB exploring the feasibility of enabling tokens issued by one bank to be accepted for retail payments by another. This is being trialled for the first time at the Singapore FinTech Festival 2023.

The second is focused on digital wallet interoperability. Ant International, Fazz and Grab will be launching a pilot that uses the purpose-bound money concept to facilitate payments by Alipay users to GrabPay merchants. The purpose-bound money should ensure that only verified Alipay wallet users can pay to eligible GrabPay merchants, with transaction limits to deter fraudulent activity. 

The third focuses on supplier financing. Amazon and HSBC are exploring the use of purpose-bound money in the tokenisation of payables from Amazon to merchants. This should help unlock liquidity for merchants, ‘thereby improving merchants’ access to financing and working capital’, MAS states.

The fourth is focused on institutional payment controls. In this case, JP Morgan is exploring the use of payment controls to enable a bank’s institutional clients to hold deposit tokens and transfer them to clients outside of the issuing bank’s direct customer base as long as the banks are part of an ‘agreed trust ecosystem’. This ensures adherence to controls set by the issuing bank and the recipient’s bank, enabling peer-to-peer transfer of deposit tokens, which are traditionally non-tradeable liabilities. 

RELATED ARTICLE Singapore preps CBDC tech despite ‘no strong case’ for digital currency – a news story (9 November 2021) on the announcement of Project Orchid at the Singapore FinTech Festival two years ago

‘Live’ wholesale CBDC pilots

In part of its Orchid Blueprint announcement, MAS confirms plans to kick off the development of a CBDC for interbank settlement next year (a wholesale CBDC is different from a retail – or general purpose – CBDC, which would be for general population use).

The authority states that it will be piloting ‘live’ wholesale CBDC issuance for the first time, after previously simulating issuance within test environments.

The first pilot will involve the instant settlement of retail payments between commercial banks. Future pilots could, the authority states, include the use of live wholesale CBDC for the settlement of cross-border securities trade. MAS believes there is currently ‘no urgent need’ for a retail CBDC.

MAS’s announcement on wholesale CBDC comes a couple of weeks after the Swiss National Bank (SNB) revealed plans to break new ground by issuing ‘real’ wholesale CBDC in Swiss francs on a financial market infrastructure based on distributed-ledger technology (DLT).

Switzerland’s central bank announced that it will kick off a pilot initiative on 1 December, together with six commercial banks, making wholesale CBDC available for the settlement of bond transactions on the SIX Digital Exchange (SDX), a platform for the trading and settlement of tokenised assets.

RELATED ARTICLE Monetary Authority of Singapore launches asset tokenisation project – our news story (17 June 2022) on the start of ‘Project Guardian’

‘Project Guardian’ spawns ‘Global Layer One’

‘Project Guardian’ is the initiative launched last year to explore the opportunities and risks of asset tokenisation. Its overall objective is to ‘catalyse the institutional adoption of digital assets, with the aim of freeing up liquidity, unlocking investment opportunities and increasing the efficiency of financial markets.’ 

As it continues to drive forward the project, MAS has announced that it will be collaborating with international policymakers and banks including BNY Mellon, JP Morgan and MUFG on an initiative dubbed ‘Global Layer One (GL1)’ to explore the design of an open, digital infrastructure to host tokenised financial assets and applications. Conceived as a global public good, GL1 would be a foundational digital infrastructure spanning multiple distributed-ledger technology (DLT) networks.

“Project Guardian’s industry pilots have successfully demonstrated that tokenised financial assets such as fixed income, foreign exchange and asset management products can be traded, distributed, and settled seamlessly across borders,” said MAS deputy MD (markets and development) Leong Sing Chiong this week. “To fully realise the potential of tokenised markets, and achieve network effects, a scalable digital infrastructure is needed. GL1 will provide a foundational digital backbone and bring markets together with similar principles of openness and accessibility as the public internet. MAS welcomes additional policymakers and financial institutions to participate in the design phase of the GL1 initiative and contribute towards its development.”

MAS also plans to collaborate with the financial industry to develop an ‘Interlinked Network Model (INM)’ to serve as a common framework for exchanging digital assets across independent networks (a 34-page white paper, ‘Interlinking Networks’, has been published).

MAS’s announcement also mentions that it has expanded its recently formed ‘Project Guardian policymaker group’, which involves the UK’s Financial Conduct Authority (FCA), Financial Services Agency of Japan (FSA) and Swiss Financial Market Supervisory Authority (FINMA), to include International Monetary Fund (IMF) staff. FINMA has ‘observer’ status.

RELATED ARTICLE Singapore, UK, Japan and Swiss regulators step up asset tokenisation collaboration – our news story (6 November 2023) on the formation and aims of the Project Guardian policymaker group

Singapore’s stablecoin regulation

Stablecoin regulation is patchy worldwide, with jurisdictions moving at different speeds to get rules in place. UK financial authorities published proposals for regulating stablecoins earlier this month.

Manon allocated a section of his keynote speech to summarising the current state of play in Singapore. “Stablecoins – if well regulated – can potentially play a useful role as digital moneyalongside CBDCs and tokenised bank liabilities,” he said, saying that MAS has “invested in developing a rigorous regulatory framework to ensure a sound stablecoin ecosystem in Singapore”.

But he said that legislative amendments for the regulatory framework to take effect “will not be ready for at least a year”. MAS has adopted an interim approach to acknowledge entities whose stablecoins can already demonstrate compliance with MAS’s regulatory framework. It has granted ‘in-principle approval’ under the Payment Services Act to three entities.

MAS also issued an update this week on Project Greenprint, a collection of initiatives launched almost three years ago that aims to harness technology and data to enable a ‘more transparent, trusted and efficient ESG (environment, social and governance) ecosystem to enable green and sustainable finance’. Specifically, it has unveiled Gprnt (pronounced ‘Greenprint’), which ‘offers an enhanced digital reporting solution for companies to ‘seamlessly report their ESG information’. It is currently undergoing live testing and will ‘rolled out’ from the first quarter of next year.

*** The three joint-winners of the annual ‘Global FinTech Hackcelerator’ 2023 competition, this year focused on artificial intelligence (AI), have also been announced during the Singapore FinTech Festival: Pints AI (Singapore), Toggle AI (US) and Visa Inc (USA). Nineteen finalists pitched their innovations to a judging panel.