Singapore to test its own digital currency

Business Wednesday 16/November/2016 13:23 PM
By: Times News Service
Singapore to test its own digital currency

Singapore: Monetary Authority of Singapore (MAS) is poised to become the latest central bank to test its own digital currency, which it will use in a trial of a blockchain-driven system for interbank payments.
The ‘proof-of-concept’ project, which also involves the city’s stock exchange and eight banks, is aimed at simplifying the payments process and reducing transaction costs, managing director Ravi Menon said in a speech on Wednesday. It may include cross-border transactions with the participation of another central bank in the future, he said.
“Today, banks have to go through correspondent banks to intermediate these payments. It takes time and adds to cost,” Menon said. “This project marks the first step in MAS’s exploration of ways to harness the potential of central bank-issued digital currency.”
The project is the latest sign that a long-discussed development for the banking industry — the adoption of blockchain to speed up and simplify interbank deals — is gaining traction after years of debate and warnings about possible safety breaches.
The MAS plan involves an internally-created digital currency. It’s a similar approach taken by the Bank of Canada, which said in June it’s running experiments on interbank payment systems using blockchain-type technology.
According to Menon, under the MAS trial: Banks will deposit cash as collateral in exchange for digital currency issued by the central bank participating banks can pay each other directly with this digital currency instead of first sending payment instructions through MAS Banks can later redeem the digital currency for cash.
Central banks in China and the UK have also been studying the prospects of issuing their digital currencies, which are independent of bitcoin, which is commonly associated with blockchain but whose allure has been tarnished by fraud and money-laundering concerns.
UBS Group, Deutsche Bank and Banco Santander has partnered with other firms and a start-up called Clearmatics to develop a “utility settlement coin” — a currency usable within a blockchain and exchangeable between banks.
Singapore’s DBS Group, its two local rivals, HSBC, Bank of America, JPMorgan Chase, Credit Suisse and Bank of Tokyo-Mitsubishi are the lenders involved in the MAS programme, according to a slide presentation for Menon’s speech.
The R3 consortium of global financial firms, which is developing blockchain applications for use in financial services including money transfers, record keeping and other back-end functions, is also supporting the effort, Menon said. The MAS said last week it’s partnering with R3 on a Singapore-based center to develop blockchain.
Singapore will also create a national “know-your-customer” platform that will help banks avoid redundancy in customer data collection and reduce compliance costs, Menon said. The “basic building block” of that system will be the government’s MyInfo service, which collects personal details of Singaporean residents, he said during an event at the Singapore Fintech Festival.