At the Singapore Fintech Festival on November 16, Singapore’s central bank, the Monetary Authority of Singapore (MAS), announced plans to conduct live trials of a central bank digital currency (CBDC) to facilitate wholesale settlements by local banks.
The move is part of their plan to expand asset tokenisation trials and establish the digital Singapore dollar infrastructure.
While MAS had previously simulated wholesale CBDC issuance within test environments, this marks the first time they'll issue CBDCs in a live environment. The trials are set to commence next year.
The first pilot will involve “live” wholesale CBDC to settle retail payments among the commercial banks in the country. The future pilots could use “live” wholesale CBDC to settle cross-border securities trade.
MAS plans to partner with local banks to pilot in these live trials. Banks will issue tokenised bank liabilities representing their retail customers' claims on their balance sheets. Retail customers can then use these tokenised bank liabilities in transactions with merchants who can credit these liabilities with their respective banks.
Outstanding interbank obligations arising from these transactions can be settled via an automatic transfer of wholesale CBDCs. Thus, clearing and settlement co-occur in the same infrastructure, unlike the current system, where they occur on different systems, causing delayed settlement.
Ravi Menon, the Managing Director of MAS, emphasised the significance of this move at the Singapore Fintech Festival. “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 the role that central bank money plays in facilitating safe and efficient payments.”
Singapore has also gotten the green signal from international organisations like the International Monetary Fund (IMF) to prepare legislation and infrastructure for issuing CBDCs. Financial institutions like the Bank for International Settlements (BIS) have also called on countries to set up relevant legislation to support CBDCs.
With support from international organisations and the efforts of MAS, Singapore is making significant strides towards becoming a digital payment innovation hub. Their wholesale CBDC initiative demonstrates their commitment to exploring the potential of digital currencies.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash