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Singapore’s regulated stablecoin could trigger CBDC
Asia-Pacific leads exploration of digital currencies, with China's eCNY out ahead
Tom King 21 Sep 2023

While some people view central bank digital currencies (CBDCs) as the inevitable long-term answer to payment solutions, others are more wary of the digital denomination’s potential to track its users and see it as more of a social monitoring tool than purely a currency option.

Whatever your opinion, according to a white paper from the World Economic Forum (WEF), the evaluation of CBDCs has significant momentum with over 100 countries actively engaged in CBDC research and development.

And the Asia-Pacific region is currently home to the largest number of countries that have launched CBDC pilot programmes. Assessments are currently underway and ongoing in Japan, South Korea, China, Hong Kong, India, Singapore, Thailand, Malaysia and Australia.

The region has also moved ahead to work on cross-border CBDC projects within the region and across regions.

To date, the endeavours include the Hong Kong-based project mBridge, a CBDC pilot involving the Central Bank of the United Arab Emirates, the Hong Kong Monetary Authority, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China (PBoC) and the Bank for International Settlements (BIS) Innovation Hub’s Hong Kong Centre.

In Singapore, the central bank, the Monetary Authority of Singapore (MAS), has run Project Dunbar to prove that financial institutions could use CBDCs issued by participating central banks to transact directly with each other on a shared platform. The project was a collaboration between the BIS Innovation Hub Singapore Centre, the Reserve Bank of Australia, Bank Negara Malaysia, the MAS and the South African Reserve Bank.

However, without question the most advanced operator of CBDCs in Asia-Pacific is China, the country first rolled out its CBDC research and development in 2014; and in 2019, the PBoC launched a pilot CBDC, the eCNY, in Shenzhen, Suzhou, Xiong’an and Chengdu and has expanded the offering to a number of other regions since then.

During last year’s Winter Olympics in Beijing, China showcased the e-CNY, with foreigners exposed to it for the first time. The digital currency, according to the WEF, was used in transactions worth 2 million yuan a day.

Pre-emptive step

Singapore, which is keen to project its own digital capabilities and commitment, is eager to become a key player in regulated digital currencies; and following a public consultation in October 2022, the MAS, last month, unveiled its framework for a regulated single-currency stablecoin (SCS).

The central bank's framework will apply to SCSs pegged to the Singaporean dollar or any G10 currency, and potential SCS issuers must meet strict requirements on value, stability, capital and redemption requirements.

“While the framework currently only envisages Singapore-issued stablecoins, it does give first-mover advantage for the development of a fully regulated stablecoin that could form the blueprint for its use as a link between the digital asset ecosystem and the traditional financial markets,” says Etelka Bogardi, partner and Asia head of fintech and financial services regulatory at global law firm Norton Rose Fulbright.

“This will have a positive impact, not least by recognizing that the stablecoin market is growing and needs an appropriate regulatory framework for large-scale adoption and its use as a conduit between digital assets and traditional finance,” Bogardi adds.

The SCS framework followed a whitepaper issued by the MAS in June this year, proposing a common protocol to specify conditions for the use of digital money, such as CBDCs, tokenized bank deposits and stablecoins, on a distributed ledger. 

The whitepaper was supported by the release of software prototypes that demonstrate the concept of “purpose-bound money”, which enables senders to specify conditions, such as validity period and types of shops, when making transfers in digital money across different systems.

The report, which was developed in collaboration with the International Monetary Fund, Bank of Korea, Banca d’Italia, financial institutions and fintech firms, has enhanced the prospects for digital money becoming a key component of the future financial and payments landscape.

Stablecoins, supported by blockchain and backed by traditional assets could be seen as an unrefined channel between cryptocurrencies and government-issued or fiat currency.

And while CBDCs and stablecoins share some digital DNA they are, of course, very different. However, they do share some resemblances, and the MAS’ push for a regulated stablecoin could be viewed as a pre-emptive step towards the inevitable roll out of a Singaporean CBDC.    

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