Digital money has the potential to facilitate more efficient transactions and enhance financial inclusion, especially in today’s world of rapid digitalisation, but is not without its challenges. South Asian economies such as Singapore, Hong Kong, and South Korea are playing a pivotal role in the development of the digital financial ecosystem.
Digital assets refer to the digital representation of value, such as the ownership of financial assets or
real economy assets. The digital asset ecosystem could potentially facilitate more efficient
transactions, enhance financial inclusion, and unlock economic value. Central bank digital currencies (CBDCs), tokenized bank liabilities and potentially well-regulated stablecoins, together with a set of well-designed smart contracts, could serve as the medium of exchange for this new digital asset ecosystem.
Although initial trials demonstrate potential, these new forms of digital monies, popularized with the blockchain and peer-to-peer money movement, need to demonstrate their utility above and beyond what is already possible today with e-payment systems such as domestic instant payment systems.
The Monetary Authority of Singapore (MAS) has released a whitepaper on purpose-bound money (PBM), a protocol that will set a standard for the use of digital money, which includes central bank digital currencies (CBDCs), tokenized bank deposits, and stablecoins.
The whitepaper was supported by the release of software prototypes that demonstrate the concept of Purpose Bound Money (PBM), which enables senders to specify conditions, such as validity period and types of shops when making transfers in digital money across different systems.
Further, the released paper aimed at establishing clarity about PBM, the paper specifies the system architecture overview, components included, roles and interaction, lifecycle and sequence flow. It also highlighted the potential uses of PBM, it includes use in Pre-paid Packages, online commerce, contractual agreements, commercial lease, trade finance, donations and cross-border payments.
The White Paper also includes that the use of PBMs can extend beyond the private sector, to be used by the official sector as well. In such cases, policy considerations will also need to be made, even while the technical implementation may remain similar. The central bank added: “Consequently when designing PBM-based solutions, policymakers need to consider who should issue and distribute digital monies, as well as specify the conditions for its use.”
The white paper proposed the concept of PBM as a common protocol for interacting with different forms
of a medium of exchange and highlights how digital money can be used to support commercial and
policy objectives without modifying its native properties. While PBM was first introduced through MAS’ Project Orchid, it is envisioned that the technical design concepts may apply to a broader audience internationally.
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.
