The Monetary Authority of Singapore (MAS) is to build the infrastructure and ‘technical competencies’ for a central bank digital currency (CBDC) despite its managing director saying there is “no strong case” for the imminent launch of a digital Singapore dollar.
The island city state’s central bank today (9 November) announced its latest thinking on the hot topic of CBDC during the Singapore FinTech Festival, alongside the publication of a detailed paper on central bank digital money.
Delivering an address on the topic of ‘The Future of Money, Finance and the Internet’, Ravi Menon described the issuance of a retail CBDC – a state-backed digital currency that would be available to citizens for day-to-day transactions – as “ultimately a socio-economic rather than a monetary consideration”.
Stating that “on balance, the case for a retail CBDC in Singapore is not urgent”, he said the authority “at the same time recognises there could be potential benefits offered by innovative retail CBDC solutions in the future.”
It is for this reason, he said, that MAS is embarking building the “technology infrastructure and technical competencies necessary to issue a digital Singapore dollar should Singapore decide to do so in future” – an initiative dubbed ‘Project Orchid’.
MAS ‘open to broad spectrum of options’
MAS’s 55-page paper, ‘A Retail Central Bank Digital Currency (CBDC): Economic Considerations in the Singapore Context’, explores the possible issuance of a retail CBDC in partnership with the private sector.
Project Orchid sees MAS take a step ahead of many similar authorities, which have typically convened research groups – and indeed are typically stepping up their technical explorations – but not committed to actually building any technology. Further details are expected to be announced in due course.
‘Further in-depth analyses on the implications of a retail CBDC for MAS’ regulatory frameworks, operational and legal considerations and its impact on the financial sector among others, still need to be undertaken in parallel,’ the paper states.
‘MAS remains open to a broad spectrum of possible [CBDC] policy options, including other modalities of public-private partnerships,’ the paper continues. ‘The development of next-generation payment rails to reap the benefit of welfare-improving advances in payment technology and governance principles can in principle be done independently of the issuance of a new MAS liability.’
But there are other digital money options for the authority to consider. ‘Another alternative would be to support the growth of Singapore dollar-denominated stablecoins, including by allowing issuers to back their tokens fully using central bank reserves,’ the paper states. ‘In these cases, MAS would play a more indirect back-end role in the provision of money and payments to households and firms in Singapore. Each of these options comes with its own balance of costs and benefits, and would need to be evaluated in parallel with the work on CBDCs.’
Financial inclusion benefits ‘not compelling’
In his speech Menon, MAS’s managing director for the past decade, also touched on financial inclusion – often flagged as one of the main potential benefits of launching a CBDC.
“The financial inclusion benefits of a digital Singapore dollar are not compelling,” he said, explaining that a high proportion of Singaporeans have bank accounts and electronic payments in Singapore are “pervasive, highly efficient and competitive”.
He also cautioned that retail CBDCs can “potentially pose significant risks to monetary and financial stability” – an observation frequently made by many central bankers. “There could be some disintermediation of the banks, particularly during stress periods if people can switch deposits into risk-free central bank money at the ‘click of a button’,” Menon continued. But he added: “We can likely manage these risks by designing the retail CBDC with sensible safeguards, such as stock and flow caps on the amount of digital Singapore dollars that anyone is allowed to place with MAS.”
MAS has recently been running a ‘Global CBDC Challenge’ to develop retail CBDC solutions. MAS plans to pursue Project Orchid alongside the private sector “building on the rich findings” of the competition, Menon said.
Sandbox, green fintech and AML updates
MAS is using the Singapore FinTech Festival, which is running throughout this week (8-12 November), to unveil plenty of announcements.
The authority said today, for example, that it would be making three ‘enhancements’ to its fintech regulatory sandbox – launched five years ago to support live experimentation of technology innovations – to create what it has called ‘Sandbox Plus’, taking effect on 1 January 2022.
MAS also announced that it would be partnering the private sector to pilot four ‘common utility’ digital platforms under ‘Project Greenprint’. This was launched in December 2020 to harness innovation and technology in the increasingly populated ‘green finance’ arena by helping to mobilise capital, monitor sustainability commitments and track impact. These new platforms include a ‘common disclosure portal’ and an ‘ESG registry’ to record and maintain ESG (environmental, social and governance) certifications on a distributed ledger.
In addition, COSMIC – a platform, developed with six banks, for financial institutions to collaborate using data analytics to combat the risks of money laundering (anti-money laundering: AML) – is scheduled to go live in 2023. In its initial phase, the platform will focus on risks related to the abuse of shell companies, illicit misuse of trade finance and evasion of United Nations (UN) sanctions.
*** MAS and the Bangko Sentral ng Pilipinas (BSP) have also announced the signing of an enhanced FinTech Cooperation Agreement to facilitate interoperable payments between Singapore and the Philippines. Building on a 2017 agreement to broaden the scope of fintech collaboration and partnership between the central banks, the agreement (signed on 8 November) will facilitate the linkage of the nations’ real-time and QR payment systems. Singapore’s real-time retail payment system, PayNow , has already linked with Thailand’s PromptPay. PayNow plans to link up with Malaysia’s DuitNow and India’s Unified Payment Interface next year.