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- CBDC is congruent with the needs of a digitized economy as per Singapore financial authority
- Ravi Menon also believes that creating an in-house retail CBDC can reduce the inherent investment risks
- If individuals were to hold a majority of their assets in the form of such digital money, then the central bank would not have sufficient loans to offer
CBDC or central bank digital currency is something most of the nations globally are planning to introduce. China is one of the leading nations when it comes to national digital currency. Following the scenario, recently, the Monetary Authority of Singapore (MAS) has also ramped up the efforts to research and develop a national digital currency. The financial authority deemed that the currency will be for retail use under the Project Orchid initiative. Indeed, the retail national digital currency will focus to hedge against privately issued fiat-pegged cryptocurrency.
MAS will partner private entities to launch CBDC
According to Ravi Menon, managing director at MAS, the upcoming CBDC will be developed in partnership with private entities. He further explained that the national digital currency would be the digital equivalent of today’s notes and coins. Menon also underscored some of the benefits of the retail CBDCs in aiding faster and secure online transactions. Moreover, digital money would also potentially build an inclusive payment ecosystem.
On the other hand, Menon also believes that creating an in-house retail CBDC can reduce the inherent investment risks. Such risks are faced while dealing with privately issued stablecoins and other foreign central bank digital currencies within their national payments landscape.
Ultimately, the upcoming CBDC is congruent with the needs of a digitized economy, and can go some way to mitigate such risk. However, issuing a retail CBDC cannot be considered as a straightforward decision, as per Menon.
Hurdles to issue a retail national digital currency
Menon noted that there is no urgency to the need for a retail CBDC. He further warned the nation that if individuals were to hold a majority of their assets in the form of such digital money, then the central bank would not have sufficient loans to offer. However MAS can likely manage such risks by designing the retail digital currency with sensible safeguards. Such safeguards include stock and flow caps on the amount of digital Singapore dollars that anyone is allowed to place with the financial authority.
MAS had experimented with wholesale CBDCs
Under the project name of Ubin, the Singaporean financial authority had previously experimented with wholesale CBDCs. The project was aimed at identifying various use cases in cross-border payments. Moreover, the new initiative saw the launch of Partior, which is a blockchain-powered interbank clearing and settlement network. Partior has been launched jointly by DBS Bank, JP Morgan, and Temasek.
Besides these measures, Menon also cited that the nation will facilitate regulatory sandboxes which are based on existing frameworks for markets with low-risk activities in a pre-defined scenario. He further highlighted that with cryptocurrency-related activities it is basically an investment in a prospective future.
