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As the island-state reiterates its stance on a retail central bank digital currency (CBDC), the desire to develop a retail CBDC is showing an increasingly sharp split around the world.
The Monetary Authority of Singapore (MAS) has said it sees no immediate case for developing a CBDC, arguing it sees no advantage in developing a CBDC early, highlighting “important risks and uncertainties that come with creating a new form of money”.
In a parliamentary reply by Lawrence Wong, deputy chairman of the MAS and minister for finance, pointed out that it was not alone in this stance and that other central banks, such as the US Federal Reserve, Bank of Canada and the Reserve Bank of Australia, had also taken the same view.
In the UK as well, a recent report by the UK House of Lords raised numerous concerns, questioning whether a CBDC was "a solution looking for a problem".
Lack of a problem to solve
Although CBDCs are typically touted as a way of bolstering financial inclusion and enabling cheaper and faster payments, these problems are not present in Singapore, nor many other developed countries.
The rollout of FAST, PayNow and SGQR in recent years means that cheap and fast payments are widely available domestically via bank-based payment systems.
Additionally, as this infrastructure is being linked up with similar systems in other countries, this should help enable cheaper cross-border payment solutions to consumers.
Wong also mentioned that the payments system in Singapore is becoming “even more innovative and competitive, as more payment service providers are being admitted through the Payment Services Act, and the new digital banks begin operating”.
“In short, we are using improvements in payment technology and competition to achieve our objectives of cheap and fast payments for all, using existing forms of central bank-backed money.”
Risks
The reply makes clear there are monetary and financial stability risks to introducing a retail CBDC, which “cannot be compromised”, as set out in a paper by the MAS in November, which found potential liquidity risks, as well as anti-money laundering and tax evasion risks.
These are risks that have been picked up by many central bankers, most recently in the United States, where Federal Reserve governor Lael Brainard has given a cautious assessment of a digital dollar.
Additionally, this was despite the MAS organising a Global CBDC Challenge in 2021 to find innovative technology solutions to the problems faced by CBDC implementation.
Divergent opinions
Singapore is a major financial hub and the MAS an influential voice in the region; therefore, its cautious attitudes to a retail CBDC represent an important line in the sand.
Across APAC in China, India, Thailand, Japan, New Zealand and South Korea, appetite for a CBDC is growing, the idea of a retail CBDC is being touted as means to not only improve financial inclusion and digitise the payments system, but also ensure governments have greater oversight around credit and tax. This last point has been expressed recently by the Kenyan government.
For some markets, a CBDC could mean a greater ability to manage the country’s financial services sector and maintain financial stability. In China, for example, there have been repeated attempts to clamp down on crypto transactions and cash withdrawals after the 2015 Shanghai stock market and property market crash showed the Chinese central bank the scale of transactions in the economy they could not see.
For example, last September, the People’s Bank of China declared on its website that all cryptocurrency transactions are illegal.
However, despite caution from the MAS, the authority has not ruled out introducing a CBDC, arguing that “the case for a CBDC could strengthen if foreign digital currencies become more widely used locally”, and if future innovations were able to resolve the risks a retail CBDC faced.
