MAS proposes framework for use of digital money in Singapore

The digital monies covered under the White Paper include central bank digital currencies, tokenised bank deposits and potentially well-regulated stablecoins.

Cheow Sue-Ann

Cheow Sue-Ann

The Straits Times


The Monetary Authority of Singapore launched a White Paper proposing standards for the use of such digital assets, in order to establish a common protocol for its use. ST PHOTO: SHINTARO TAY

June 22, 2023

SINGAPORE – Digital money has the potential to facilitate more efficient transactions and enhance financial inclusion, especially in today’s world of rapid digitalisation, but it is not without its challenges.

On Wednesday, the Monetary Authority of Singapore (MAS) launched a White Paper proposing standards for the use of such digital assets, in order to establish common protocol and conditions for their use.

Digital assets refer to the digital representation of value, including ownership of financial or real-economy assets.

The digital monies covered under the White Paper include central bank digital currencies (CBDCs), tokenised bank deposits and potentially well-regulated stablecoins.

Unlike cryptocurrencies such as Bitcoin, which are more volatile, such digital monies are usually pegged to a real-world currency, commodity or financial institution, and are thus generally considered more stable.

The MAS White Paper lays out a set of requirements to protect the use of such assets as a medium of exchange, and provides a technical overview of Purpose Bound Money (PBM).

This comes as financial institutions and fintech companies in Singapore take steps towards the use of digital assets.

Some of these companies include household names such as Amazon and Grab.

While the use of such assets can help businesses and companies make trade finance more secure, such as by guarding against fraud, it also has potential to serve consumers directly.

For example, for individuals, this type of digital money can potentially be used for online shopping and pre-payments, such as allowing customers to pay the seller only when items are delivered; and for paying for a house at stipulated times, such as when construction hits certain milestones.

PBMs are a form of tokenised digital currency that is limited in how it can be used. In simple terms, a PBM can be imagined as a voucher of sorts – where users can safely exchange value without directly transferring funds.

Crucially, the paper explains how PBMs can be designed such that money is transferred only upon fulfilment of goods or services, and can be used to protect both consumers and merchants.

MAS said that PBM features the use of a common protocol that is designed to work with different ledger technology and forms of money.

It “enables money to be directed to a specific purpose without requiring money itself to be programmed”.

PBM refers to a protocol that specifies the conditions under which underlying digital money can be used.

It can be visualised as a secure two-layered delivery vehicle, where a “wrapper” holds funds secure as collateral until the right conditions are met for it to be released.

The MAS said: “PBMs are bearer instruments, which are transferrable on a peer-to-peer basis without intermediaries. PBMs contain digital money as a store of value and programming logic denoting its use based on programmed conditions.”

The White Paper also laid out the processes that users and institutions must follow, as well as the lifecycle of PBMs.

With this standardised format, users will be able to access digital money using a wallet provider of their choice.

The setting of these standards will go some way in enhancing the prospects for digital money to become a key component of the future financial and payments landscape.

The standardisation and regulated use of PBMs can unlock significant economic value, and facilitate more efficient and inclusive digital transactions, as well as additional protection for consumers, according to MAS.

One example is the use of PBMs for the protection of online payments, such as in e-commerce and payment for pre-paid packages.

The use of PBM will allow advance payments to be protected by allowing users to pay, but keeping the funds “wrapped” and held safely until the service in question has been fulfilled.

When all the conditions specified have been met, the PBM will be “unwrapped” and funds can be redeemed by the receiver.

Not only does this assure the consumer that the product or service would be delivered before the funds are released, but it also helps merchants to ensure that the customer has paid, and funds are available for redemption, before they deliver.

Other potential uses of PBM include helping businesses mitigate the risks associated with international trade transactions by making sure that payments are made securely and efficiently; as well as reduce the risk of fraud or non-payment.

In order to ensure the safety and usability of such digital monies, MAS specified some considerations that will affect how PBMs might be implemented.

These include interoperability, to ensure that the PBMs work across different platforms to avoid fragmentation and high fees for users.

The choice of underlying digital currencies could also affect the usability and value of PBMs.

CBDCs, tokenised bank liabilities and stablecoins offer different levels of guarantees and are subject to different regulatory oversight.

Moreover, MAS said, “as the global regulatory landscape for digital monies is still evolving, the regulatory treatment of PBMs may vary across jurisdictions”.

Other important factors include privacy, digital readiness and how the application of PBMs might affect users.

The White Paper also includes that the use of PBMs can extend beyond the private sector, to be used by the official sector as well.

In such cases, policy considerations will also need to be made, even while the technical implementation may remain similar.

The central bank added: “Consequently, when designing PBM-based solutions, policymakers need to consider who should issue and distribute digital monies, as well as specify the conditions for its use.”

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