Singapore’s Central Bank proposes protocol for digital currency use amidst purpose-bound money trials

107088496 1657759779140 gettyimages 1236288201 SINGAPORE MAS

The Monetary Authority of Singapore (MAS), the city-state’s central bank, has unveiled a proposal for a unified protocol to govern the use of digital currencies, as reported by Bloomberg. This announcement comes as several financial institutions and fintech firms initiate trials of purpose-bound money in Singapore.

On Wednesday, the regulator issued a statement detailing the release of a comprehensive whitepaper. This document delineates the technicalities involved in the life cycle of purpose-bound money, and how arrangements could be encoded to ensure money is transferred solely upon fulfilment of a service or adherence to the terms of use.

The proposed purpose-bound money protocol is envisioned to be compatible with diverse ledger technologies and money forms. This universal approach is intended to allow users to access digital money via their wallet provider of choice, explained MAS. By creating a common protocol, the same infrastructure can be utilised across numerous use cases. Digital money, as defined by the MAS, encompasses central bank digital currencies, tokenised bank deposits, and stablecoins on a distributed ledger.

In light of the proposed protocol, several financial institutions and fintech companies in Singapore are forging ahead with trials of purpose-bound money. This is being tested in areas such as online commerce and programmable rewards, demonstrating a step forward in the innovative use of digital currency technology.

One prominent player in the pilot tests is Grab Holdings Ltd. The company is investigating the feasibility of escrow arrangements for online retail payments, an initiative that aims to increase assurance for both parties in a transaction. With this arrangement, payment is held in an escrow account and is only released to the vendor when the customer has received their items.

The publication of the whitepaper and the proposal of the common protocol builds upon Project Orchid, a MAS-led initiative that commenced in 2021. Project Orchid was conceived to scrutinise the technical infrastructure and competencies required to issue a digital Singapore dollar.

The move by Singapore’s central bank to regulate the use of digital currencies signifies a promising step towards a more structured approach in digital finance. It not only presents a framework for digital transactions but also promotes a secure environment that assures both parties in transactions.

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