The Monetary Authority of Singapore (MAS) has been working to develop a central bank digital currency (CBDC), commonly referred to as the Digital Singapore Dollar. In November 2023, they revealed plans to take this project to the next stage with a live wholesale CBDC pilot set to launch in 2024.
A CBDC is a digital form of a country’s fiat currency that is issued and regulated by its central bank. MAS has been researching CBDCs since 2016 with the goal of modernizing Singapore’s monetary and payment systems for the digital age. Thus far, they had only simulated issuance of a digital currency within test environments. However, the wholesale CBDC pilot will involve actual issuance and use of the Digital Singapore Dollar for interbank settlements.
Specifically, the wholesale CBDC will be used as a common settlement asset for payments between commercial banks in Singapore. This means banks will be able to instantly settle transactions by transferring the CBDC on a shared ledger, replacing the current multiple-step process done on different systems with lags. MAS Managing Director Ravi Menon stated this live issuance of central bank digital money is “a significant milestone” that reinforces the role of central bank money in facilitating efficient payments.
Expanded Digital Money Trials
In addition to the wholesale CBDC pilot, MAS is growing the scope of its Project Orchid trials to test various uses of digital currencies and financial infrastructure components. Some new partnerships as part of these expanded trials include:
- Tokenized bank liabilities for retail payments between users and merchants that can credit tokenized funds to their banks.
- Wallet interoperability tests with players like OCBC and UOB to enable tokens from one bank to pay merchants that accept another bank.
- Supplier financing tests using purpose-bound digital money tokens to unlock liquidity for merchants through partners like Amazon and HSBC.
- Institutional payment controls to allow regulated transfers between financial institutions as part of a trusted ecosystem.
By launching these real-world pilots involving major industry players, Singapore is gaining valuable insights into CBDC technology applications and design tradeoffs before fully implementing a national digital currency system. MAS believes this innovation will benefit consumers through more payment options and help Singapore stay on the forefront of the digital economy.
Progress Towards a Live Digital Currency System
CBDCs are gaining interest globally as countries like China have launched national digital yuan trials. The development of the Digital Singapore Dollar follows this trend while also addressing unique considerations for a small open economy reliant on international trade and finance. With its newest initiatives, Singapore seems to be graduating from proof-of-concept testing to live-network deployments.
Specifically, the wholesale CBDC pilot will provide real-world data on interoperability, scalability and performance for tokenized funds and blockchain-based settlement. Lessons learned through the expanded trials should also help identify the most impactful ways to integrate new digital payments into people’s daily lives. Once tested, a full production version of the Digital Singapore Dollar network could start integrating additional features like digital identity and cross-border payment capabilities over time.
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