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TechTalk / Treasury & Capital Markets
Singapore lays foundation for digital currency
MAS to issue ‘live’ CBDC for wholesale settlement of retail payments between banks
The Asset 16 Nov 2023

Singapore is moving closer to launching its own central bank digital currency (CBDC) with the financial regulator focusing on issuing a digital money for wholesale settlement.

The Monetary Authority of Singapore (MAS) has unveiled three initiatives to ensure the safe and innovative use of digital money in the city-state, namely a blueprint outlining the infrastructure required for a digital Singapore dollar, expansion of digital money trials, and a plan to issue “live” CBDC for settlement of retail payments between banks.

According to the MAS plan, three forms of digital money will be promoted: wholesale CBDCs, tokenized bank liabilities, and regulated stable coins.

The regulator on Thursday (November 16) published Orchid Blueprint, which sets out the technology infrastructure that would be required to facilitate digital money transactions in the future. The blueprint builds on what has been learned from the Project Orchid industry trials and identifies the building blocks for the sound use of digital money.

These building blocks include a settlement ledger to record digital money transfers; a tokenization bridge to connect existing account-based settlement systems with ledgers; the use of Purpose Bound Money (PBM) as a common protocol to specify the conditions for the use of digital money; and a name service to translate between unwieldy wallet addresses and alternative name identifiers that are readable and meaningful for verification.

Four new trials will be undertaken with industry players to examine relevant infrastructure components and commercial models. These are:

  • Tokenized bank liabilities: OCBC and UOB are exploring the feasibility of enabling tokens issued by one bank to be accepted for retail payments by another. This will be first trialled at the Singapore FinTech Festival 2023.
  • Wallet interoperability: Ant International, Fazz and Grab will be launching a pilot that uses the PBM concept to facilitate payments by Alipay users to GrabPay merchants. The PBM ensures that only verified Alipay wallet users can pay to eligible GrabPay merchants, with transaction limits to deter fraudulent activity.
  • Supplier financing: Amazon and HSBC are exploring the use of PBM in the tokenisation of payables from Amazon to merchants. This will help unlock liquidity for merchants, thereby improving merchants’ access to financing and working capital.
  • Institutional payment controls: J.P. 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.

To complement the digital money trials by the financial industry involving retail and corporate users, MAS will start the development of CBDC for wholesale interbank settlement next year. MAS will pilot the “live” issuance of wholesale CBDCs for the first time, after previously simulating issuance within test environments. The first pilot will involve the use of “live” wholesale CBDC to settle retail payments between commercial banks. Future pilots could include the use of “live” wholesale CBDC for the settlement of cross-border securities trade.

“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," says MAS managing director Ravi Menon. "The issuance of wholesale CBDC reinforces the role that central bank money plays in facilitating safe and eficient payments.”

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