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On balance, the case for a retail central bank digital currency (CBDC) in Singapore is not urgent, the Monetary Authority of Singapore (MAS) has said in a new research paper.
“For a subject that has attracted much attention, there are neither strong reasons for or against a retail CBDC in Singapore,” Ravi Menon, the managing director at MAS has told an audience at Singapore’s Fintech Festival.
Physical cash is likely to be predominant for quite some time more, so the need for a digital version of cash is moot at this point, he continued.
This is in spite of the regulator’s CBDC report showing a noticeable decline in cash use in recent years, which has been amplified due to COVID-19.
Use of cash at point-of-sale transactions fell to 26 percent of total transactions in 2020, from 37 percent in 2019, according to the MAS. Although it is worth noting that cash statistics used by the MAS are not official numbers, but taken from estimates used in the Worldpay Global Payments report. ATM usage also declined significantly during the same period.
Although 2020 data is not available, the total value and volume of cashless transactions in Singapore had a compound average growth rate (CAGR) of 11.2 percent and 4.7 percent respectively per annum between 2015 and 2019, according to the Bank for International Settlements.
However, beyond the decline in cash use, there are other factors making a case for why a country may want to issue a CBDC, such as financial inclusion. This was a key driver behind the decisions of Nigeria’s central bank to issue an e-Naira.
According to Menon, however, the financial inclusion benefits of a digital Singapore dollar are not compelling. “A high proportion of Singaporeans have bank accounts and electronic payments in Singapore are pervasive, highly efficient, and competitive,” he said.
According to Tharman Shanmugaratnam, the minister responsible for the MAS, in a 2020 parliamentary response: “It is estimated that over 98 percent of Singapore residents have bank accounts.”
“The issuance of a retail CBDC is ultimately a socio-economic rather than monetary consideration,” he said, adding that moving to a fully cashless society with all money in the form of bank deposits will not make a significant difference to the conduct of monetary policy.
Rather, the question is whether the public is comfortable with holding only bank deposits and whether there is public demand for a state-issued currency that is as safe as cash but in digital form, he pointed out.
The digital payment system in Singapore is already very efficient and low cost and even free for person-to-person transfers, so it is not a high priority to pursue retail CBDC, unlike a wholesale CBDC, said Chia Hock Lai, co-chairperson of Singapore’s Blockchain Association.
“Having said that, once asset tokenisation becomes more pervasive, which is still a few years away, then issuing a retail CBDC might make a lot more sense as it becomes possible to complete deliver vs. payment automatically, hence MAS is still pressing on to build the capability,” he told VIXIO, commenting on the paper.
Menon was also unperturbed by possible currency substitution by foreign digital currencies, dismissing it as a “remote tail risk at this point”.
Payments players in South East Asia previously told VIXIO earlier this year that the prospect of a digital yuan, currently in the trial phase in China, has spurred more interest than private initiatives such as Facebook’s Diem.
China’s CBDC, otherwise known as the e-CNY, is continuing to gather momentum among the country’s 1.4bn population as the trial rollout continues. Some 140m people had opened wallets for China's new digital yuan as of October and used it for transactions totalling 62bn yuan (£7.2bn).
In spite of this, Hock Lai was in agreement with Menon. “It is too early to tell at this point as there are multiple considerations and each ASEAN [Association of South-East Asian Nations] country has its own unique considerations when rolling out their own CBDC,” he said.
“ASEAN countries are more likely to release their own CBDCs for other reasons such as financial inclusion than because of China's digital yuan.”
Next steps
CBDC enthusiasts and sceptics alike would be wrong to anticipate the Singaporean government and its supervisory authorities completely writing off the prospect of a mass-usage Singaporean digital currency.
“MAS recognises that there could be potential benefits offered by innovative retail CBDC solutions in the future,” said Menon.
For this reason, the financial regulator is embarking on Project Orchid. This will build the technology infrastructure and technical competencies necessary to issue a digital Singapore dollar, should Singapore decide to do so in future.
The MAS will pursue Project Orchid in close partnership with the private sector, Menon confirmed, adding that it will draw expertise from the Global CBDC Challenge, whose finalists are due to be announced at the Fintech festival this week.
Participants include Bitt, which has aided the Eastern Caribbean Currency Union and Nigeria in its CBDC plan, as well as Giesecke+Devrient, a German currency company that, among other things, is working with the Bank of Ghana on its development of a CBDC.
