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November 17, 2023

Singapore's Bold Move: Launching a Live Wholesale CBDC for Settlements


The Monetary Authority of Singapore (MAS) has embarked on an ambitious journey towards the digital future of finance. In a groundbreaking announcement at the Singapore Fintech Festival, MAS Managing Director Ravi Menon unveiled a pilot program that could revolutionize the way local banks settle payments. The central bank of Singapore is set to trial a live wholesale Central Bank Digital Currency (CBDC) denominated in Singapore dollars, aiming to streamline and enhance the settlement process for financial institutions.

The Shift Toward Digital Innovation

In a world increasingly characterized by digitalization, central banks are exploring ways to adapt to this new landscape. Singapore's MAS is no exception. The decision to pilot a live wholesale CBDC represents a significant leap forward in embracing financial technology. Until now, MAS had confined its CBDC efforts to simulated environments for testing and research. However, this latest announcement marks a pivotal moment in the practical implementation of CBDC technology.

Instantaneous Settlements: A Game Changer

The cornerstone of MAS's initiative is the ambition to enable instantaneous settlements across commercial banks. This means that transactions, previously subject to delays caused by clearing and settlement processes on different systems, can now be settled in a single step on the same infrastructure. The implications of this shift are profound. By leveraging CBDC technology, Singapore aims to eliminate the lag in settlement, ushering in a new era of efficiency in the financial sector.

Tokenized Liabilities and Retail Transactions

As part of the pilot program, banks will issue tokenized liabilities representing claims on their balance sheets. These tokenized assets will be made available for retail customers to use in their transactions with merchants. The beauty of this system lies in its simplicity and speed. When a retail transaction takes place, the settlement will occur via an automatic transfer of a wholesale CBDC. This streamlined approach not only expedites the process but also reduces complexities associated with traditional systems.

A Focus on Wholesale CBDC

It's essential to understand the distinction between a wholesale CBDC and its retail counterpart. While retail CBDCs are designed for use by the general public, wholesale CBDCs primarily serve central and commercial banks and other large financial institutions. They are instrumental in facilitating interbank transactions and settlements. Singapore's move to introduce a live wholesale CBDC underscores its commitment to enhancing the infrastructure that underpins its financial system.

Project Guardian: Expanding Possibilities

In tandem with the live CBDC pilot program, MAS has also introduced additional industry pilots under the banner of Project Guardian. This initiative aims to explore various use cases related to asset tokenization. What began with 12 members has now expanded to include 17 major financial institutions, including heavyweights like BNY Mellon, HSBC, and Citigroup. This collaborative effort signifies the industry's recognition of the transformative potential of CBDCs.

A Legacy of Innovation

Singapore's journey into the realm of CBDCs didn't start with this pilot program. In fact, it builds upon the legacy of initiatives such as Project Ubin, a six-year-long trial program conducted in collaboration with the New York Federal Reserve. Project Ubin demonstrated the potential of CBDCs in revolutionizing cross-border payments, making them more efficient and cost-effective. The results of this trial underscored the viability and utility of CBDCs in the global financial landscape.

In conclusion, Singapore's central bank has taken a bold step towards the future of finance. The live wholesale CBDC pilot program represents a significant milestone in the adoption of digital currencies and blockchain technology. By streamlining settlements, reducing delays, and fostering innovation, Singapore is poised to become a leading player in the global CBDC landscape. As the financial world continues to evolve, MAS's commitment to staying at the forefront of technological advancements is a testament to its dedication to efficiency, security, and progress.

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