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FameEX Hot Topics | Singapore's Central Bank to Test Live Wholesale CBDC for Transaction Settlements

2023-11-17 16:23:00

Singapore’s central bank, the Monetary Authority of Singapore (MAS), has announced a pilot program for a live, Singapore dollar-based central bank digital currency (CBDC). This innovative step, unveiled at the Singapore Fintech Festival on November 16 by MAS Managing Director Ravi Menon, marks a significant progression from the bank's previous simulations of a CBDC in test environments.

The pilot will see the use of a wholesale CBDC by local banks for settlement purposes. Menon detailed the MAS’s plans to collaborate with Singaporean banks to explore the utilization of the CBDC as a settlement asset in domestic transactions. This initiative represents a leap from the bank's earlier simulated scenarios to practical, real-world applications.

Menon explained that in the test program, banks will issue tokenized liabilities, which are essentially claims on their balance sheets. Retail customers can use these tokenized liabilities for transactions with merchants. Settlements of these transactions will be conducted through the automatic transfer of the wholesale CBDC. This approach simplifies the clearing and settlement process, enabling them to occur simultaneously and on the same infrastructure. This is a departure from the current system where clearing and settlement are executed on different systems and settlement often experiences a delay.

The significance of a wholesale CBDC lies in its use primarily by central and commercial banks and other large financial entities for settling payments. This specialized application distinguishes it from retail CBDCs, which are designed for general public use.

Additionally, on November 15, the MAS expanded its financial infrastructure testing initiative, known as Project Guardian. The project, which initially involved 12 members, now includes five new industry pilots and extends its membership to 17. This expansion has attracted major financial institutions such as BNY Mellon, HSBC, and Citi Group, broadening the scope of the project. Project Guardian is dedicated to evaluating various use cases around asset tokenization, demonstrating the MAS's commitment to exploring cutting-edge financial technologies and their applications in the evolving digital economy. This pilot and the expansion of Project Guardian underscore Singapore's position as a leader in financial technology and innovation.

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