MAS completes first phase of CBDC project

This stage of Project Orchid explored the potential use cases for a digital Singapore dollar as well as the infrastructure required to implement one. It looked at the concept of purpose-bound digital Singapore dollars, which allows senders to specify how and where the money will be used. They found there is currently no urgent need for a retail CBDC but said they want to be prepared in case that changes.

The country has been collaborating with the crypto industry and issuing licenses to big players such as Coinbase and Blockchain.com and has continued to explore a retail CBDC despite feeling like there is no need for one.

MAS believes that a CBDC would be a small part of the money supply in the same way that physical cash is. Banknotes and coins issued by MAS only account for around 8% of the entire money supply, while privately issued money makes up 92%, the report said.

What’s next?

Some of the use cases of a CBDC will be tested through trials with the public and private sector in 2022 and 2023. The trials will include looking at government and commercial vouchers that can be used to purchase goods at the Singapore FinTech Festival. Government payouts will also be tested that do not require participants to have a bank account plus the CBDC will be used to automatically release grants.

DBS Bank said it would issue digital Singapore dollars with smart contract capabilities enabled by the Open Government Products office in a pilot program that would make instant settlement possible, saving merchants one or two days of processing time. One thousand consumers and six merchants are participating in that trial. The bank, which is Singapore’s largest, said that PBM would be applicable in the Community Development Council scheme that provides households with vouchers to counteract inflation and the high cost of living.

The next phase of Project Orchid will look at what the best ledger technology is for the CBDC and how this can be integrated with the existing infrastructure.

Retail CBDC

Countries around the world have been looking into retail CBDC’s. A BIS survey in May revealed that 90% of the 81 responding central banks have started work on a CBDC. The US, UK, and European Union are reviewing whether or not they should issue a CBDC while China is further along than most countries in its CBDC trials.

The retail CBDC system will form part of Singapore’s national foundational digital infrastructure, which brings together payments, digital identity and data exchange, and authorisation and consent mechanisms to protect the privacy and welfare of individuals more holistically.

While MAS has been at the forefront of experiments with CBDC, the focus in the past has been more on wholesale rather than retail CBDCs. It published five sets of trials under Project Ubin. The minister stated that retail CBDCs were ‘not very relevant to MAS and Singapore at this juncture’. This decision is in line with several other central banks, such as the US Federal Reserve, Bank of Canada, and Reserve Bank of Australia.