It was reported Friday 17th November 2023 by the city-state’s central bank that Singapore will be piloting the live issuance and use of wholesale central bank digital currencies in 2024.
During the pilot, the Monetary Authority of Singapore, (MAS) will partner with local banks to pilot the use of wholesale CBDCs to facilitate domestic payments.
What is a CBDC?
A CBDC is a digital form of a country’s fiat currency, issued and regulated by the central bank or monetary authority of that country. CBDCs are different from cryptocurrencies, which are decentralized and not backed by any government.
Singapore is one of the countries that has been actively exploring the potential of CBDCs, both for wholesale and retail purposes. Wholesale CBDCs are meant for interbank transactions and cross-border payments, while retail CBDCs are meant for general public use and everyday payments.
CBDC MAS timeline
In November 2021, the Monetary Authority of Singapore (MAS) launched Project Orchid, a retail CBDC project that aims to build the infrastructure and test the use cases for a digital Singapore dollar. The project will explore the concept of purpose-bound digital Singapore dollars, which allow senders to specify how and where the money will be used.
In August 2021, MAS announced Project Dunbar, a wholesale CBDC project that involves the collaboration of the Reserve Bank of Australia, Bank Negara Malaysia, and South African Reserve Bank. The project will develop prototypes of shared platforms for cross-border transactions using multiple CBDC’s.
In June 2021, MAS published a monograph on the economic considerations of a retail CBDC in the Singapore context. The monograph concluded that there is no urgent case for a retail CBDC in Singapore, but MAS wants to be prepared in case the situation changes in the future.
In April 2021, MAS extended the regulatory sandbox for Project Ubin, a wholesale CBDC project that started in 2016. Project Ubin has successfully demonstrated the feasibility of using blockchain technology for clearing and settlement of payments and securities.
In March 2021, MAS joined the Multiple CBDC (m-CBDC) Bridge initiative, a wholesale CBDC project that involves the Bank of Thailand, the Hong Kong Monetary Authority, and the Bank for International Settlements. The project will explore the use of distributed ledger technology to enable real-time cross-border transactions using multiple CBDC’s.
Process
Banks will issue tokenized bank liabilities in the form of claims in balance sheets. Retail customers can then use the tokenized bank liabilities in transactions with merchants, who will then credit these bank liabilities with their respective banks. Tokenization refers to the process of issuing a digital form of an asset on a blockchain.
The CBDC will then be automatically transferred to the merchant as a form of payment during the transaction.
Many central banks are testing and exploring their own digital currencies, includung the UK and U.S.