Tag: CBDC

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Singapore to pilot use of wholesale central bank digital currencies in 2024

Central bank digital money

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.

Singapore to pilot use of wholesale central bank digital currencies in 2024

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.

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IMF says now is the time for central bank digital currencies

Central Bank digital money to replace cash

IMF’s Kristalina Georgieva reportedly said that the public sector should keep preparing to deploy central bank digital currencies (CBDC’s) and related payment platforms in the future.

But according to data from the Atlantic Council, only 11 countries have adopted CDBC’s thus far.

Alternative to cash

Central bank digital currencies (CBDC’s) have the potential to replace cash. But adoption could take time, said Kristalina Georgieva, managing director of the International Monetary Fund on Wednesday 15th November 2023.

‘CBDC’s can replace cash which is costly to distribute”, she is reported to have said at the Singapore FinTech event. ‘They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts’.

‘CBDC’s would offer a safe and low-cost alternative to cash. They would also offer a bridge between private monies and a yardstick to measure their value, just like cash today which we can withdraw from our banks’, the IMF chief reportedly said.

Fiat currency

CBDC’s are the digital form of a country’s fiat currency, which are regulated by the country’s central bank. They are powered by blockchain technology, allowing central banks to channel government payments directly to households.

Central Bank digital money to replace cash. IMF’s Kristalina Georgieva reportedly said that the public sector should keep preparing to deploy central bank digital currencies (CBDC’s) and related payment platforms in the future.

The IMF has indicated that more than 100 countries are exploring CBDC’s – that’s approximately 60% of countries in the world.

‘The level of global interest in CBDCs is unprecedented. Several central banks have already launched pilots or even issued a CBDC’, the IMF said in a September 2023 report.

According to a 2022 survey conducted by the Bank for International Settlements, of the 86 central banks surveyed, 93% said they were exploring CBDCs, while 58% said they were likely to or may possibly issue a retail CBDC in either the short or medium term.

But as of June 2023, only 11 countries had adopted CBDC’s, with an additional 53 in advanced planning stages and 46 researching, according to data from the Atlantic Council.