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November 17, 2023

Singapore to pilot wholesale CBDC

The Monetary Authority of Singapore says the interbank payment architecture will be launched next year.

By Greg Noone

Singapore will pilot a new wholesale central bank digital currency (CBDC) in 2024, the managing director of the country’s central bank says. But the announcement comes as a senior executive at Mastercard warned that “there isn’t enough justification” yet for retail CBDCs in advanced economies. 

News of the new CBDC was announced by Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), who told the Singapore FinTech Festival yesterday that MAS “will pilot the live issuance of wholesale CBDCs to instantaneously support payments across commercial banks here.” 

A wide shot of Singapore harbour. On November 16th, the Monetary Authority of Singapore announced that it would pilot a new wholesale CBDC in 2024.
On November 16th, the Monetary Authority of Singapore announced that it would pilot a new wholesale CBDC in 2024. (Photo by Sean Pavone / Shutterstock)

CBDCs are digital currencies issued and supervised by central banks. CBDC tokens are backed by an equivalent amount of real-world currency or assets, meaning they are not prone to the wild fluctuations in value seen in other types of digital currency such as Bitcoin.

Retail CBDCs are used to settle all kinds of payments, but wholesale CBDCs are only used in large, interbank transactions. According to the Atlantic Council’s CBDC tracker, Singapore is now among 13 countries piloting wholesale CBDCs, including China, Russia, Australia and India. The Bank of England is set to make a decision about whether to launch a CBDC for the UK by 2025.

For its part, the MAS has been experimenting with wholesale CBDCs to facilitate cross-border payments on distributed ledgers since 2016. Its new pilot of a wholesale CBDC will now see it team up with local banks to supervise interbank transactions within Singapore itself. 

When will we see retail CBDCs go mainstream?

The MAS announcement comes after both IMF and Mastercard expressed misgivings about the near-term viability of retail CBDCs. On Wednesday, the former’s managing director said that they do have significant advantages. “CBDCs can replace cash, which is costly to distribute in island economies,” Kristalina Georgieva said. “They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts.”

But, she added, much more work needs to be done to prepare for their introduction into the mainstream economy. “We have not yet reached land,” said Georgieva. “There is so much more space for innovation and so much uncertainty over use cases.”

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Ashok Venkateswaran, Mastercard’s Asia-Pacific lead for blockchain and digital assets, was more sceptical. Retail CBDCs, he told CNBC, should function in the same way that cash does. But, added Venkateswaran, payment systems are now so efficient in advanced economies like Singapore that “there isn’t a reason for a retail CBDC.” 

On the prospects for success of a wholesale Singaporean CBDC, however, Venkateswaran was more supportive. A stronger argument could also be made for both retail and wholesale CBDCs in less advanced economies, he added. “If it’s a country where the domestic payment network is not as robust,” said Venkateswaran, “it may make sense to have a CBDC.”

Read more: Digital Pound at least five years away – Bank of England chief

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