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Singapore to pursue cross-border digital currency potential
Singapore is assessing the use of central bank digital currency (CBDC) for cross-border foreign exchange settlements with global partners, such as Swiss National Bank. It hopes the international collaboration will help identify potential governance structures, technical standards, and policies needed to support industry use cases.
The Monetary Authority of Singapore (MAS) said its efforts here would bolster the country’s capabilities in tapping digital currency-based infrastructure for cross-border transactions.
For starters, it would work with Banque de France, Swiss National Bank, and the Bank for International Settlements Innovation Hub’s Eurosystem, Switzerland and Singapore centres to explore the exchange and settlement of Swiss franc, Euro, and Singapore dollar wholesale CBDCs, via an automated market maker (AMM) arrangement. A concept often used in decentralised finance (DeFi), AMM facilitates the exchange and settlement of digital assets carried out automatically with a smart contract.
MAS also would participate in SWIFT’s CBDC Sandbox alongside more than 17 central banks and international commercial banks. The objective here is to look at cross-border interoperability across digital currencies, based on distributed ledger technology (DLT) as well as non-DLT payment platforms.
In addition, the Singapore central bank would study potential mechanisms to maintain connectivity across CBDCs and other heterogenous digital currency networks. Its focus here would further encompass the use of smart contracts to optimise efficiency and mitigate counter-party risks in the settlement of cross-border transactions.
In unveiling the new initiatives, MAS said it hoped to assess business models and governance structures for cross-border foreign exchange settlement, based on digital currencies, where atomic settlement–or the simultaneous exchange of two linked assets in real-time–could improve efficiencies and reduce settlement risks, compared to existing infrastructures.
It also would look to develop technical standards to facilitate cross-border connectivity, interoperability, and atomic settlement of currency transactions across platforms, as well as establish policy guidelines for cross-border connectivity between digital currency infrastructures to drive global participation.
According to MAS’ managing director Ravi Menon, cross-border payments still is a signifiant challenge for global markets today.
For most people, it remains slow, costly, opaque, and inefficient, relying on an archaic network of correspondent banks,” Menon said at this week’s Singapore FinTech Festival. He noted that the global average cost of sending remittances clocked at a hefty 6% of the transfer value, pointing to figures from World Bank.
To address this challenge, he said links had to be built across countries’ real-time payment systems, similar to how boats today could pass through global waters.
Stressing the need for a robust real-time system, he said atomic settlement could help eliminate settlement risks and duplicative reconciliation. “It has benefits not only for retail payments, but also cross-currency and securities transactions,” he said.
MAS on Wednesday unveiled plans to run industry trials to test potential uses of “purpose-bound”, or programmable, digital money, including funds disbursement without requiring recipients to have a bank account.
Singapore’s Deputy Prime Minister and Finance Minister Lawerence Wong earlier this week said the government would set aside an additional SG$150 million ($106.12 million) over the next three years, towards the national Financial Sector Technology and Innovation (FSTI) scheme.
Since its inception in 2015, the funding programme has supported more than 1,500 projects from two rounds of grants totalling SG$300 million.
The new SG$150 million funds injection would continue to focus on key areas for the financial services sector, including artificial intelligence, analytics, and cybersecurity, as well as include additional focus areas such as ESG fintech and Web 3.0.
Source: https://www.zdnet.com/finance/banking/singapore-to-pursue-cross-border-digital-currency-potential/