Yahoo Finance Singapore examines central bank digital dollar for retail
By Krystal Chia and Chanyaporn Chanjaroen
(Bloomberg) — Singapore’s central bank is starting a project on the technological aspects of building a digital form of its currency to prepare for the days if the city-state decides to have one, its chief said Tuesday.
While acknowledging potential benefits of having its own digital currency for the local public, such arguments are not compelling enough, Managing Director Ravi Menon of the Monetary Authority of Singapore said at the annual fintech festival. Physical cash will remain for “quite some time” and possible currency substitution by foreign digital money is “a remote tail risk,” he said.
Code-named “Project Orchid,” it will focus on the technology infrastructure and technical competencies needed to issue a digital Singapore dollar, Menon said. The project will be in partnership with the private sector, he said.
Menon’s comments reflect the dilemma of central bankers worldwide, who are seeing cryptocurrencies become increasingly important from a systemic point of view, and watching decentralized finance (DeFi) challenge the intermediary role of financial institutions. China has made significant progress with its e-yuan, which has undergone numerous trials, versus countries from the U.S. to the U.K. and Japan that are still deliberating.
“The issuance of a retail CBDC is ultimately a socio-economic rather than a monetary consideration,” Menon said.
Risks Posed
The financial-inclusion benefits of a digital Singapore dollar are not yet “compelling” as a high proportion of Singaporeans have bank accounts, and electronic payments in the city state are already efficient, said Menon.
Retail CBDCs can also pose “significant risks to monetary and financial stability,” particularly during stress periods but such risks can likely be managed with “sensible safeguards,” he said.
Singapore is among pioneer countries working on various projects on wholesale CBDCs for cross-border payments, which have an advantage over paper notes for CBDCs can be constantly tracked via identity data and transactions kept in the blockchain.
The Bank for International Settlements is working on a study to develop prototypes for a common platform that will enable international settlement of central bank-backed digital currencies with Australia, Malaysia, Singapore and South Africa, it said in September.
© 2021 Bloomberg L.P.
