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Singapore’s Ravi Menon bullish on digital money
Central banker backs wholesale CBDCs, tokenized bank liabilities, regulated stablecoins
Tom King 17 Nov 2023
Ravi Menon, managing director ot the Monetary Authority of Singapore
Ravi Menon, managing director ot the Monetary Authority of Singapore

In his keynote address to attendees at this year’s Singapore Fintech Festival, the Monetary Authority of Singapore (MAS) managing director Ravi Menon, reiterated his support for the unceasing digitization of the financial sector.

There are three key outcomes, Menon says, that the MAS wants to collectively achieve as part of its ambitious plans to develop the financial ecosystem while working closely with the city-state’s financial industry and its international partners.

The authority, he explains, wants to see cross-border payments become cheaper, faster and more efficient; enable financial assets to be transacted seamlessly across multiple trading venues through digital assets, digital money and interoperable digital networks; and foster a trusted data and disclosure ecosystem to support sustainable finance for the world’s transition to net-zero.

“Everything we do in fintech must have a larger purpose,” Menon shares. “Yes, there is money to be made, costs to be cut, opportunities to be seized, but fintech is more importantly about solving real-world problems, improving people’s lives, promoting a more inclusive society and securing a sustainable planet for the future.”

Digital currency

Addressing the issue of digital money, Menon sees four contenders for digital money, namely privately issued cryptocurrencies, central bank digital currencies (CBDCs), tokenized bank liabilities, and well-regulated stablecoins.

However, in a swipe at cryptocurrencies he states that “cryptocurrencies have failed the test of digital money.” He adds that they have performed poorly as a medium of exchange or store of value, and their prices are subject to sharp speculative swings, pointing out that many investors in cryptocurrencies have suffered significant losses.

In place of privately issued cryptocurrencies, Menon believes wholesale CBDCs and tokenized bank liabilities can instead fulfill the role of digital money and help to achieve atomic settlement in which the exchange of assets between two parties is typically instantaneous and mostly without intermediaries.

Wholesale CBDC trial

With the MAS conducting experiments with other central banks and the financial industry to explore the use of wholesale CBDCs since 2016, Menon says: “We will take our experiments a step further next year [when] the MAS will pilot the ‘live’ issuance of wholesale CBDCs to instantaneously settle payments across commercial banks.”

Previously, the MAS had only simulated the issuance of wholesale CBDCs within test environments. However, the financial authority will soon partner with local Singaporean banks to pilot the use of wholesale CBDCs as a common settlement asset in domestic payments.

“Banks will issue tokenized bank liabilities that represent claims on their balance sheets by their retail customers,” he explains. “Retail customers will be able to use these tokenized bank liabilities in transactions with merchants who can, in turn, credit these tokenized bank liabilities with their respective banks.”

Outstanding interbank obligations arising from these transactions are to be settled via an automatic transfer of wholesale CBDCs.

On the topic of stablecoins, the central bank head says that he feels that if they are well regulated stablecoins can potentially play a useful role as digital money, alongside CBDCs and tokenized bank liabilities.

“The MAS, therefore, has invested in developing a rigorous regulatory framework to ensure a sound stablecoin ecosystem in Singapore,” he adds. “But the legislative amendments [necessary] for the stablecoin regulatory framework to take effect will not be ready for at least a year.”

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