The MAS will collaborate with local banks during the pilot, allowing them to issue tokenized bank liabilities on blockchain technology, streamlining the clearing and settlement processes.
Singapore is gearing up for a groundbreaking move into the era of Central Bank Digital Currencies (CBDCs), with plans to pilot the live issuance and use of wholesale CBDCs in 2024.
As reported by CNBC, Ravi Menon, the Managing Director of the Monetary Authority of Singapore (MAS), announced the plans at the Singapore FinTech Festival 2023. The initiative aims to leverage the benefits of blockchain and Distributed Ledger Technology (DLT) for instantaneous and efficient cross-border payment and settlements among commercial financial institutions.
The Evolution of Wholesale CBDC
Wholesale CBDCs are digital currencies issued by central banks exclusively for use by financial institutions and commercial banks, primarily for settling large-value interbank transactions. Unlike retail CBDCs, which cater to individuals and businesses for everyday transactions, wholesale CBDCs focus on enhancing the efficiency of high-value transactions among financial institutions.
The Monetary Authority of Singapore has been at the forefront of experimenting with CBDCs, particularly wholesale CBDCs, since 2016. One notable project in this journey is Project Ubin, which explored the utilization of blockchain and distributed ledger technology for clearing and settling payments and securities.
Project Ubin successfully concluded in 2021 after five phases of experimentation, involving major institutions such as Singapore’s largest bank, DBS, and sovereign wealth fund Temasek. The upcoming live pilot of wholesale CBDCs in Singapore is poised to revolutionize domestic payments.
The MAS will collaborate with local banks during the pilot, allowing them to issue tokenized bank liabilities on blockchain technology, streamlining the clearing and settlement processes. Retail customers can then seamlessly use these tokenized bank liabilities in transactions with merchants, simplifying the entire payment ecosystem.
Another key benefit highlighted by Menon is the elimination of the traditional two-step clearing and settlement process. In the current system, these steps take place on different systems with a lag in settlement. The new system, enabled by wholesale CBDCs, ensures that clearing and settlement occur in a single step on the same infrastructure, allowing for instant transactions.
Global Trends in Wholesale CBDC Development
It is worth mentioning that Singapore is not alone in its pursuit of wholesale CBDC innovation.
On Wednesday, the managing director of the International Monetary Fund, Kristalina Georgieva urged the public sector to continue preparing for the deployment of CBDCs and related payment platforms in the future.
“We have not yet arrived at land. “There is so much more room for innovation and so much uncertainty about use-cases,” Kristalina explained.
Other countries, such as Switzerland and South Korea, have also initiated pilot programs to explore the issuance and potential uses of wholesale CBDCs. The Swiss National Bank, in collaboration with SIX Digital Exchange and major commercial banks, is testing CBDCs for settling digital security transactions, while South Korea is evaluating the feasibility of a monetary system reliant on wholesale CBDCs.
