Singapore to pilot wholesale CBDC issuance in 2024

The Monetary Authority of Singapore (MAS) has announced that it will introduce the Central Bank Digital Currency (CBDC) for wholesale transactions next year. The government has previously tested the "live" issuance of the digital currency in test environments.

The goal is to expand tests for digital money and set up the technology needed for a digital Singapore dollar. This is part of a bigger effort to create a system for digital money transfers, including making digital versions of bank assets.

"The 'live' issuance of central bank digital money for use as a common settlement asset in payments is a significant milestone in MAS' digital money journey that began in 2016. The issuance of wholesale CBDC reinforces central bank money's role in facilitating safe and efficient payments," said MAS managing director Ravi Menon.

However, Menon said that cryptocurrencies had not been proven effective as a medium of exchange or store of value due to volatile prices and significant investor losses.

Regardless, MAS considers well-regulated stablecoins a promising digital currency that complements CBDCs and tokenized bank liabilities. Menon cited StraitsX's stablecoin and Paxos Digital's newly introduced USD-pegged stablecoin as examples.

While Singapore is recognized as a crypto hub in Asia, regulators aim to establish the nation as a hub for digital assets. Menon highlighted alternative technology uses beyond crypto speculation, referencing Project Guardian, where MAS and industry partners are tokenizing foreign exchange, bonds and funds to enhance global liquidity and streamline cross-border transactions.

Other countries, including China, India, Nigeria and the Bahamas, are also developing laws and systems for digital currencies.

China's government also wants to make the digital yuan more popular globally. China is ahead in developing its digital currency compared to many other major economies. Its total transactions have reached about 1.8 trillion yuan (around $250 billion) by June.

Countries like China consider CBDCs as a way to deal with private cryptocurrencies. In addition to governments, major global banks also participate in crypto initiatives.

For example, DBS Group China has introduced a payment product based on China's digital currency, e-CNY. The bank has also launched other initiatives, such as custodial services for crypto assets, which allow wealthy customers to store cryptocurrencies such as Bitcoin, Ethereum and other crypto tokens.

Singapore's Orchid Blueprint

MAS' Orchid Blueprint outlines the tech needed for future digital transfers. MAS conducts four trials with different companies to test other parts of the system. One of these trials, involving digital versions of bank debts for daily payments, starts at the Singapore FinTech Festival 2023.

The Orchid Blueprint also details the wholesale digital currency plan, explaining methods to experiment with tokenized bank debts and stablecoins with rules and listing specific requirements for using digital currencies, tokens and stablecoins in Singapore.

MAS is creating a ledger with programmability features and quick settlements of digital tokens to facilitate digital money transfers. The plan involves establishing a "Name Service" for user-friendly wallet addresses and building a bridge to connect existing settlement systems with ledgers compatible with tokenized digital money.

The Orchid Blueprint introduces a "programmability protocol," utilizing "purpose-bound money" (PBM) to set specific conditions for using digital money. PBM, a concept from MAS, enables money to be directed to specific purposes, with planners defining its usage.

Singapore's PBM will enhance tokenized payments for Amazon and HSBC, particularly for supply financing, aiding merchants in obtaining and utilizing working capital. Significant advancements have occurred in Singapore's CBDC development since the initial pilot, where commercial banks facilitated retail payments and hinted at broader cross-border settlements.