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Project Orchid has provided the Monetary Authority of Singapore (MAS) with a "sharpened understanding" of central bank digital currency (CBDC) use cases, including adding conditions to what it can be used for, but the regulator still has no plans to issue one.
“The introduction of e-money provided the ability to store value electronically and carry it with us. Digital currencies go beyond that, allowing money to be programed and used for specific purposes only,” said Sopnendu Mohanty, chief fintech officer at the MAS.
Through practical experimentation with the industry, Mohanty said that the regulator has sharpened its understanding of the potential uses of a digital Singapore dollar (SGD) and the infrastructure required to support it. “We look forward to collaborating further with industry participants and policymakers in subsequent phases of Project Orchid.”
Phase one of Project Orchid, which has now been completed, explored the concept of purpose-bound money (PBM) using a digital SGD.
PBM enables senders to specify conditions, such as validity period and types of shops, when making transfers in digital SGD.
According to the MAS’ report on the SGD, the project sought to “achieve the right balance between tapping the possibility of emerging technologies while ensuring that the initiative remains pragmatic and grounded in addressing today’s problems and context”.
Via contributions from public and private stakeholders, the regulator has said that it has established a set of use cases.
These include government vouchers. For example, at the 2022 Singapore FinTech Festival (SFF), DBS Bank and the country’s Government Technology Agency have collaborated on an Open Government Products Division (OGP) that will test the use of PBM for disbursements to selected individuals.
Trial participants can use vouchers at participating food and beverage outlets, and merchants will directly receive the underlying digital SGD for the vouchers redeemed.
OCBC and the Central Provident Fund Board (CPFB), meanwhile, will test the use of PBM for government disbursements for recipients without a bank account.
The trial will be conducted using a test disbursement scheme in a controlled environment with selected participants.
United Overseas Bank Ltd (UOB) and SkillsFuture Singapore (SSG) will test the use of PBM to enhance the the latter's credit disbursement process, enabling SkillsFuture grants to automatically be released to participating training providers when eligibility conditions are met.
Commercial vouchers have also been identified as a use case. State-backed Temasek and fintech platform Fazz and Grab will test the issuance of PBM as commercial digital vouchers to SFF 2022 participants on November 2-4, 2022.
Trial participants can utilise these vouchers through their preferred wallet applications to make purchases at participating merchants at the festival.
In subsequent phases, the MAS has said that Project Orchid will engage with a broader set of stakeholders and investigate a greater set of capabilities.
Future research areas include the integration of a common QR code system, the fungibility of digital currencies among different issuers, transactional privacy, offline payments, digital wallet integration, and future trials where individuals could have options to define conditions for transfers and be PBM creators in effect.
In spite of work intensifying, the MAS has been firmer than its peers, such as the European Central Bank and Bank of England, in questioning the need for a CBDC.
Its attitude more so reflects the likes of Switzerland, which has been adamant that it does not see the need for a retail focused CBDC at least.
However, as projects and testing continues, there is also a chance for doubters to be convinced, especially if new use cases or pain points in how payments are currently made can be identified and addressed.
