MAS outlook on Cryptocurrency

While the MAS sees benefits (and the associated risks) in issuing a digital Singapore dollar, "the case for a retail Central Bank Digital Currency (CBDC) in Singapore is not urgent". 

As of October 2022, MAS is developing Project Orchid, a multi-year, multi-phase exploratory project examining the various design and technical aspects pertinent to a retail CBDC system for Singapore, from its functionalities to its interaction with existing payment infrastructures. Read more here.

According to MAS (Speeches)
last revised on 9 Nov 2021

...A CBDC is the direct liability of and payment instrument issued by the central bank.  

What is MAS’ stance towards CBDCs?  To answer that, let me distinguish between two types of CBDCs:

• Wholesale CBDCs – which are restricted to use within the banking system and are akin to the reserves commercial banks place with the central bank today.
• Retail CBDCs – which are issued by the central bank to the general public; they would be the digital equivalent of today’s notes and coins.

MAS sees much promise in wholesale CBDCs. They have the potential to radically transform cross-border payments. But since wholesale CBDCs by definition are not meant to be used as currency by the general public, they are not money. So let me focus on retail CBDCs for now. 

Retail CBDCs are essentially digital versions of cash. Interest in retail CBDCs has risen sharply in the last two years. According to a survey by the Bank for International Settlements, six out of ten central banks are experimenting with retail CBDCs. 

MAS has been carefully studying the economic merits and implications of a retail CBDC in the Singapore context. We have just released a detailed paper outlining our current thinking.

There are three possible reasons for MAS to issue to the public a digital Singapore dollar.

First, a digital Singapore dollar would make available the benefits of using central bank money in the growing world of online transactions. Like notes and coins, a digital Singapore dollar issued by MAS will be safe, widely accepted, and bear the authority of the state.  Cash is the ultimate risk-free asset, and means of final settlement. The rapid displacement of cash in favour of electronic payments based on bank deposits or e-wallets is one of the chief motivations for countries like Sweden and China to consider retail CBDCs. 

Second, a digital Singapore dollar could possibly foster an efficient and inclusive payment ecosystem. It could make it easier for smaller firms to build new payments and related digital services.  Start-ups, for instance, can integrate with the retail CBDC and not need to build their own e-money and user base. This financial inclusion rationale has been a key motivation for countries like Cambodia and the Bahamas to adopt retail CBDCs.  

Third, a digital Singapore dollar could mitigate against the encroachment of privately issued stablecoins or foreign CBDCs in Singapore’s payments landscape. As these global digital currencies enter our market and become widely accessible in the future, they could potentially displace the use of the Singapore dollar in domestic retail transactions. A digital Singapore dollar issued by MAS that is congruent with the needs of a digitalised economy could go some way to mitigate this risk. 

But issuing a retail CBDC is not a straightforward decision.

Retail CBDCs can potentially pose significant risks to monetary and financial stability. There could be some disintermediation of the banks, particularly during stress periods if people can switch deposits into risk-free central bank money at the “click of a button”.   Even in normal times, if people held a significant portion of their deposits in the form of digital Singapore dollars with MAS, it would considerably reduce our banks’ capacity to make loans.  But we can likely manage these risks by designing the retail CBDC with sensible safeguards, such as stock and flow caps on the amount of digital Singapore dollars that anyone is allowed to place with MAS.

On balance, the case for a retail CBDC in Singapore is not urgent. 

For a subject that has attracted much attention, there are neither strong reasons for or against a retail CBDC in Singapore. Why do I say that?

• Physical cash is likely to be with us for quite some time more and so the need for a digital version of cash is moot at this point.
• The financial inclusion benefits of a digital Singapore dollar are not compelling. A high proportion of Singaporeans have bank accounts and electronic payments in Singapore are pervasive, highly efficient, and competitive.
• Possible currency substitution by foreign digital currencies is a remote tail risk at this point.

The issuance of a retail CBDC is ultimately a socio-economic rather than a monetary consideration. Moving to a fully cashless society with all money in the form of bank deposits will not make a significant difference to the conduct of monetary policy. The question is whether the public is comfortable with holding only bank deposits and whether there is public demand for a state-issued currency that is as safe as cash but in digital form. So for now, there is no strong case for a retail CBDC.

At the same time, MAS recognises there could be potential benefits offered by innovative retail CBDC solutions in the future.

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Project Orchid is a multi-year, multi-phase exploratory project examining the various design and technical aspects pertinent to a retail CBDC system for Singapore, from its functionalities to its interaction with existing payment infrastructures. Though MAS has assessed that there is no urgent need for a retail CBDC in Singapore at this point in time,  MAS seeks to facilitate ongoing learning and advance the financial infrastructure in Singapore

Objectives

• Develop the technology infrastructure and technical competencies necessary to issue a retail CBDC (i.e., a digital version of Singapore dollar cash)
• Explore potential use cases for a programmable money in Singapore

Rather than building a CBDC ledger first, the project has taken a user driven approach instead. The first phase of the project aims to uncover potential use cases for a programmable digital SGD and the infrastructure required. Subsequent phases of Project Orchid will investigate the optimal ledger technology to build out a CBDC as well as its integration to the existing financial market infrastructure.