Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), said that by 2024, Singapore will probably be a pioneer within the direct issuance and use of central bank digital currencies.
He announced that MAS plans to start testing wholesale central bank digital currencies (CBDCs) next 12 months. This decision is consistent with global trends, as data from the Atlantic Council think tank show that 130 countries are currently exploring digital currency initiatives, covering 98% of the worldwide economy.
Menon made the announcement earlier this week on the Singapore FinTech Festival 2023. The pilot will involve local banks and can aim to check the feasibility of using wholesale central bank digital currencies (CBDC) in domestic payments. The digital currency is very intended for giant transactions between banks and institutional entities, which is a major step towards financial innovation.
Wholesale CBDC is a type of digital currency issued by central banks and used exclusively by central banks, business banks or other financial institutions to settle large interbank transactions. In contrast, retail CBDC is designed to fulfill the needs of people and businesses by facilitating on a regular basis transactions.
The foundation for these efforts was laid by the Ubin project, which began in 2016 and aimed to explore the usage of blockchain and digital ledger technologies in clearing, payment settlement and securities. The Ubin project was successfully accomplished in 2021, after completing five phases of trials. Partners involved within the project include leading banks in Singapore equivalent to DBS and sovereign wealth fund Temasek.
Then last November, MAS announced the Ubin+ initiative, which goals to speed up cross-border connections to wholesale CBDCs by working with international partners.
In the pilot phase, the Central Bank of Singapore will work with local banks to check the implementation of wholesale CBDCs to streamline domestic payments. Banks will issue tokenized receivables for bank liabilities, which retail customers will then give you the chance to make use of in transactions with merchants.
In this process, merchants will post tokenized bank liabilities to their respective bank accounts. The definition of tokenization here means the stage of issuing assets in digital form which can be registered on the blockchain. The CBDC is then routinely transferred to the vendor as a type of payment on the time of transaction.
With the emergence of CDBC, it has the potential to drive competition and innovation within the digital currency space. This features a greater impact of efforts to adopt national digital currencies on the general dynamics of the digital currency space.
