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Does Singapore Need a Retail CBDC? MAS Says No But Commences Trials

The Monetary Authority of Singapore (MAS) has announced the conclusion of Phase 1 of Project Orchid – a retail CBDC (central bank digital currency) initiative.

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The Monetary Authority of Singapore (MAS) has announced the conclusion of Phase 1 of Project Orchid – a retail CBDC (central bank digital currency) initiative.

According to a white paper published on Monday, the MAS explored the concept of a purpose-bound digital SGD (PBM), something which it describes as the “digital equivalent of today’s notes and coins issued by MAS.” The PBM will enable senders to specify conditions, such as validity period and types of shops, when carrying out transactions in digital SGD.

“The introduction of e-money provided the ability to store value electronically and carry it with us. Digital currencies go beyond that, allowing money to be programmed and used for specific purposes only. Through practical experimentation with the industry, we sharpened our understanding of the potential uses of a digital Singapore dollar and the infrastructure required to support it. We look forward to collaborating further with industry participants and policymakers in subsequent phases of Project Orchid,” Sopnendu Mohanty, MAS chief fintech officer, said in the report.

While the MAS found no “compelling” reasons for a retail CBDC for now, the report also mentioned that the MAS will continue to actively explore “good use cases” of digital currencies, with Project Orchid aiming to build the “technical capabilities and competencies” necessary for MAS to issue a retail CBDC, should the need arise.

For now, the MAS has launched four trials to test the use of the PBM. At this year’s Singapore Fintech Festival (SFF) held from 2-4 November, Temasek, Fazz Financial Group and Grab Holdings will test the issuance of PBM as commercial digital vouchers participants. Trial participants will be able to use the vouchers through their preferred wallet applications to make purchases at participating merchants at the festival.

Other trials include OCBC and the Central Provident Fund Board (CPFB) testing the use of the PBM for funds disbursement from government agencies, without requiring recipients to have a bank account.

Benefits of a retail CBDC

CBDCs in Singapore’s context is interesting because of its potential interoperability between government and commercial applications. With a retail CBDC, money will no longer be siloed within singular systems like PayNow, PayLah, and GrabPay credits, where users have to do manual on-off ramps between these systems.

Interoperability can also lower marginal costs of building digital payments into applications. This helps lower the cost of KYC as regulators will be able to easily track the origin of funds by just referencing it off the centralised government CBDC database.

According to Rahul Advani, APAC policy director at Ripple, Project Orchid’s Phase 1 completion demonstrates how retail CBDCs can be designed to be purpose bound and programmable.

“There’s an entire host of use cases (government vouchers and payouts, commercial vouchers, and managing learning accounts) being explored here by the MAS and industry participants in the trials that have real-world applications, and will be also be relevant to other jurisdictions,” Advani told Blockhead.

In September 2021, Ripple announced it was partnering with the Royal Monetary Authority of Bhutan to pilot a CBDC. Two months later, the company partnered with the Republic of Palau to help the island nation develop its own USD-backed stablecoin.

“There is also the potential to expand these use cases to eliminate friction in other areas in Singapore, such as social assistance payments and other government payments. The key now will be to ensure access to a broad segment of the population to ensure adoption, and the interoperability with e-wallets and payment systems,” Advani added.