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Singapore to trial purpose bound money CBDC, digital currency, with DBS, OCBC, UOB pilots

digital currency singapore dollar

Today the Monetary Authority of Singapore (MAS) issued a whitepaper on purpose bound money, a tokenized form of digital currency which restricts how money can be used. It is part of the Project Orchid retail central bank digital currency research (CBDC) initiative. Four pilot projects are being run, three of which involve Singapore’s largest banks, DBS, OCBC and UOB.

The central bank distinguishes between programmable payments – conventional payments with rules, programmable money, where the rules and the payment instrument are combined in a blockchain-based token, and purpose bound money (PBM), which it views as a third model building on programmable money. The money involved might be central bank digital currency, tokenized bank deposits or stablecoins, collectively referred to as digital Singapore dollars (DSGD). In the DBS pilot it is tokenized bank money.

At a practical level, PBM is a type of voucher. It could be a government voucher, where the money is intended for a specific use, or a private voucher, even a gift voucher. The challenge for merchants is they have to handle all the administration involved in accepting different kinds of vouchers. That includes signing up contracts and also processing the vouchers, which invariably results in a small delay of a day or two before the seller receives a cash payment.

MAS wants to create a standard for this process, making different kinds of vouchers interoperable. That would make it far easier for merchants to agree to accept various vouchers, and they could also receive instant payments rather than having to wait.

For a government or private issuer to distribute a PBM voucher they have to lock up cash to back the voucher, be it a CBDC, tokenized bank money or a digital currency.

A series of purpose bound money pilots

In the case of DBS Bank, for the pilot, it has partnered with Open Government Products (OGP) to help it issue Community Development Council vouchers used to help people cope with the rising cost of living. The trial will involve 1,000 consumers and six food and beverage outlets for four weeks starting October 27. 

“We want to test how we can potentially make settlement faster and less costly, and reduce the reconciliation effort of banks, voucher issuers and merchants,” said Li Hongyi, Director of Open Government Products. “If verified to be helpful, perhaps such a model – in which merchants receive DSGD immediately with each voucher redemption instead of a voucher (and needing to be reimbursed separately) – could be a model extensible to future other government programmes.”

Singapore’s other big banks are also involved in pilots. OCBC and the Central Provident Fund Board will trial government payouts where the recipients don’t need to have a bank account. And UOB and SkillsFuture Singapore (SSG) will test the disbursement of SSG credits.

Later this week, during Singapore Fintech Week, there’s a pilot for commercial vouchers in association with Temasek, Fazz Financial and Grab, Singapore’s version of Uber. 

At this stage, MAS does not see a need to progress with a retail CBDC, but it nonetheless wants to be ready if the need arises. It is also conducting cross border multi-CBDC experiments as part of Project Dunbar, DeFi experiments with Project Guardian, and its whitepaper hints at “other cross border digital currency connectivity initiatives” in 2023.

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