Project Orchid

Design considerations of PBMs

In its report, MAS provides discussion around the design choices and factors that weigh into how a PBM might be implemented. These include:

  • Interoperability
  • Fungibility of digital SGD across issuers
  • User Protection
  • Operational Cost 
  • Digital Readiness
  • Security 

According to MAS (Project Orchid Phase 1 Report)

6.1 Interoperability

It is critical that introducing PBM and additional service providers do not lead to fragmentation in the payment ecosystem. If each PBM provider runs its own proprietary networks, it will lead to the creation of walled gardens with their own closed ecosystem of partners. This could lead to monopolistic, rent seeking behaviour amongst commercial firms.

6.2 Fungibility of digital SGD across issuers

As long as there are multiple media of exchange by different issuers, some type of mechanism
is generally required for them to be considered uniformly as currency, such that they can be used interchangeably for payments at their face value without being subjected to discounting or other frictions. Otherwise, differences across issuers, for example in the composition of their reserve backing, can lead to varying degrees of trust and confidence in their liabilities and hence the perceived value among end-users. This, in turn, prevents universal acceptance, which fragments liquidity and introduces significant inefficiencies into economic exchanges.

6.3 User Protection

The nascency of PBM technology and digital currency, means that without prior knowledge, users might find it difficult to differentiate between a genuine PBM token and digital SGD, and attempts to defraud them.

6.4 Operational Cost

A motivation for implementing a PBM based infrastructure is that the overall transaction cost should be low, or minimally lower than the cost of existing systems.

6.5 Digital Readiness

Electronic payments and the adoption of digital technology in Singapore has accelerated in recent years. However, the introduction of any new forms of payment instrument in the form of a digital SGD would likely require some adjustment to the user experience and might be viewed as disruptive by some.

6.6 Security

If users lose their private keys to their digital wallets, there is no feasible way to get back access to the contents of their digital wallets. This also means that any digital asset or PBM that is stored within that digital wallet will be inaccessible to any party.

6.7 Anti-Money Laundering and Countering Financing of Terrorism

While a seamless user experience is an important design goal, it is equally paramount to ensure that there is a proper procedure to conduct risk assessment and enforce anti-money laundering (AML) and countering the financing of terrorism (CFT) commitments.

PBMs are designed to be used in a permissioned ecosystem and for payments of goods and services that are provided by approved merchants. This is to mitigate money laundering and terrorist financing risk concerns. As PBM is extended to other use cases in future, additional safeguards and risk appropriate measures may need to be introduced.