Jakarta, CNBC Indonesia – Singapore next year begins trials of using a central bank digital currency (CBDC) for inter-bank transactions.
This step was announced by Ravi Menon, Managing Director of the Monetary Authority of Singapore (Singapore’s central bank) on the sidelines of the Singapore FinTech Festival 2023 on Thursday (17/11/2023).
“We will experiment further next year. I am proud to announce that MAS has begun trialling wholesale CBDC issuance to support instant payments between commercial banks,” he said.
CBDC wholesale is a digital currency issued by a central bank, but specifically used by central banks, commercial banks and other financial institutions in large-value inter-bank transactions.
This means that Singapore’s digital currency, which will be issued next year, cannot yet be used for daily transactions by individuals or companies. The term used for digital currency for everyday use is retail CBDC.
“Since 2016, MAS has conducted various trials with other countries’ central banks and the financial industry, examining the use of wholesale CBDC on distributed ledgers to facilitate cross-border payments and settlements,” said Menon.
The pilot project, named Project Ubin, was initiated in 2016 to study the use of blockchain and digital ledger technology for clearing and settlement of payments and securities.
MAS declared Project Ubin a success in 2021 after going through five experimental phases. Partners involved in the Ubin Project include, among others, DBS and Temasek.
In November last year, MAS announced Ubin+, namely the development of cross-border connectivity utilizing wholesale CBDC in collaboration with international partners. MAS is partnering with local banks to test the use of CBDC in domestic payment facilitation.
Banks will later issue liabilities in the form of tokens which are recorded as claims on the financial balance sheet. Token is the term used for digital assets within a blockchain infrastructure.
Customers can then use these tokens to make transactions with merchants. The merchant then credits the tokens to its partner bank. CBDC will later be automatically transferred to the merchant during the transaction.
“So clearing and settlement occur in one step on the same infrastructure, unlike the current system where clearing and settlement occur in different systems and settlement takes time,” said Menon.
Menon is scheduled to retire from his position as Managing Director of MAS on December 31 2023 after leading it since 2011. The position of Singapore central bank boss will be filled by Chia Der Juin.
[Gambas:Video CNBC]
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