Even though MAS is getting ready to test digital currency, it said that the case for a central bank digital currency (CBDC) for retail is “not compelling for now.” Analysts say that many Singaporean investors may not be interested in retail CBDCs. Instead, they may want to buy cryptocurrencies.
Singapore’s central bank said on Monday that it was looking into the idea of a purpose-bound digital currency, which could be used for government vouchers and payments, among other things. However, it said that the case for a retail central bank digital currency (CBDC) is “not compelling for now.”
The purpose-bound digital currency is just the first step of a larger project done in partnership with private companies. It is also a step toward building the technical infrastructure and skills needed for a future retail CBDC.
In a press release, the Monetary Authority of Singapore (MAS) said that purpose-bound digital currency would let senders set conditions, such as when the voucher expires and what kinds of stores it can be used at, when sending its digital currency.
In its 55-page report, the MAS defined purpose-bound digital currency as “a protocol that specifies the conditions under which an underlying digital currency can be used.” Purpose-bound digital currency can be used on different platforms and systems.
This means that using purpose-bound digital currency could get rid of the need for voucher users to have a bank account. This would stop vouchers from being used in ways they weren’t meant to be used and speed up the payment process.
The MAS report said that purpose-based digital currency could be used to digitize vouchers and help government programs by working with both government and private institutes to test the idea.
MAS has also teamed up with DBS, Grab Holdings, Fazz Financial Group, and Nets, a Singapore company that handles electronic payments.
This comes after MAS head Ravi Menon talked about Singapore’s attitude toward cryptocurrency, as Hong Kong moves to legalize retail trading of digital tokens and Singapore looks at plans to put new restrictions on consumers.
He said that the city-state didn’t want to compete with other places, especially when it came to regulations. He also said that the MAS would work to limit risks, which hurt retail investors the most.
Sopnendu Mohanty, MAS’s chief fintech officer, said that e-money should do more than just let people store and carry money electronically; it should also be “programmed and used only for specific purposes.”
He said that by working with the industry and trying things out, the authority had “got a better idea of how a digital Singapore dollar could be used and what kind of infrastructure would be needed to support it.”
The press release didn’t say when the public will be able to use the purpose-bound digital currency, but it did say that some people who attend the Singapore Fintech Festival 2022 will be able to get vouchers for the trial and use the purpose-bound currency.
Woo Jun Jie, a senior research fellow at the Institute of Policy Studies at the National University of Singapore, said that the MAS might not be rushing to create retail CBDCs because the current system for issuing government debt has been working well enough.
At the launch of the project last year, MAS chief Menon said that using retail CBDC has some benefits, like building an efficient payment ecosystem and protecting against the spread of privately issued stablecoins or foreign CBDCs, but that “retail CBDCs can potentially pose significant risks to monetary and financial stability.”
He gave some examples of possible problems, such as banks not being able to help during times of stress and more people keeping a lot of their deposits in Singapore dollars, which would make it harder for banks to lend money.
He also said that the MAS is aware of the possible benefits of CBDC in retail, “should Singapore decide to do it in the future.”
In its report on the topic, the MAS wrote that it expected any future retail CBDC to “only make up a small part of our money supply, playing a useful but ultimately limited role in the economy, just like physical cash.”
The MAS was still “aware that the case for a retail CBDC in Singapore is still open at this point” because the sector was changing so quickly.
Experts say that many Singaporean investors may not even be interested in CBDCs that are sold to the public.
Woo, who also does research on how to regulate cryptocurrencies, said that there would probably be “limited interest or demand for retail CBDCs” and that people would be more likely to buy cryptocurrencies.
“Investors are interested in cryptocurrencies because they are volatile and offer arbitrage opportunities. “On the other hand, CBDCs are more stable, so they only serve as a way to store value, which is what government bonds already do,” he said.
About 90% of the world’s central banks are using, testing, or looking into CBDCs, so most are jumping on board to make sure they don’t get left behind as they continue to figure out the technology.
After experimenting with different technologies and currencies for eight months, the financial messaging system Swift showed its plan for a global CBDC network earlier this month.
China’s new digital yuan app came out earlier this year in a few cities and regions. In the US, the Fed finished a four-month public consultation period in June, during which they asked people what they thought about the idea of a digital dollar.
