Singapore central bank creates distributed ledger currency

  • The Monetary Authority of Singapore and R3 have successfully completed Phase 1 of Project Ubin to use DLT for interbank transfers.

  • Ultimate goal is to reduce risk and costs in cross-border settlements of payments and securities.

  • DLT is being investigated by authorities around the world: will the Reserve Bank of Australia be next? 

Source: Monetary Authority of Singapore

                                                                                                                                 

Point of View

 

The Monetary Authority of Singapore (MAS), the country’s central bank, and R3 have successfully completed Phase 1 of Project Ubin to develop a ‘proof of concept’ to conduct interbank payments using distributed ledger technology (DLT). Project Ubin has leveraged many of the technical aspects of Canada's Project Jasper.

 

R3 is a distributed database technology firm that leads a consortium of more than 80 large financial institutions across the world. The consortium, which includes CBA, Macquarie Bank, NAB and Westpac, created its own open-source platform, Corda, in 2016.

 

The MAS is developing the technology with a view to introduce potential benefits to Singapore’s financial ecosystem, such as reduced processing times and lower fees. Project Ubin’s ultimate goal is to reduce risk and costs for cross-border settlements of payments and securities.

 

Phase 1 has enabled real-time transfers of Digital SGD – a tokenised version of the Singapore Dollar (SGD) – from the MAS to financial institutions, using DLT through Singapore’s real-time gross settlement (RTGS) system, MAS Electronic Payment System Plus (MEPS+).

 

As with traditional arrangements, financial institution participants must lodge collateral with the MAS in MEPS+, in exchange for ‘central bank money’. However, with Project Ubin the central bank money is tokenised SGD.

 

The first phase was designed so that no credit exposures arise between MEPS+ participants. The MAS creates a value of Digital SGD equal to the cash collateral lodged by participants. It provides this to the financial institutions, as deposits in the accounts they hold with the central bank.

 

Participants are then free to make transfers with each other using Digital SGD. There is no credit risk because the Digital SGD are a binding claim on the MAS, which is not subject to default.

 

Phase 2 of Project Ubin will focus on two streams of work. The first involves continuing work on the domestic payment system and liaising with overseas central banks on potential cross-border payments. The second will be to evaluate the use of DLT for settlement of Singapore Government Securities (SGS). The two tracks will be led by the MAS and the Singapore Exchange, respectively.

 

Implications

 

Singapore is not the only nation working with DLT:

  • UK: The Financial Conduct Authority (FCA) has opened a dialogue with industry on DLT, having released a discussion paper in April 2017.
     

  • Canada: In June 2016, the Bank of Canada, R3 and several major Canadian banks joined to work on Project Jasper, to develop a new DLT interbank payments solution, which would run along side the Large Value Transfer System (LVTS). However, in May this year, the Bank of Canada announced that DLT was not a viable substitute for LVTS at this time.
     

  • Germany: Deutsche Bundesbank and Deutsche Börse, the central bank and securities exchange, respectively, announced in February that they have developed a DLT prototype. Features of the prototype include settling payments and securities, and processing basic corporate actions, such as coupon payments on bonds.
     

  • China: The Peoples’ Bank of China began testing a prototype cryptocurrency in February 2017. The currency has been in development since 2014.
     

  • Russia: The central bank is currently testing a blockchain solution to process online payments and verify customers.

The Reserve Bank of Australia currently monitors developments in DLT, but has not, to date, actively participated in the space. With central banks and other authorities around the world investigating uses of the technology in their jurisdictions, perhaps the Reserve Bank will be the next to consult on the matter, or embark on its own solution. However, ASX, which is supervised by the Reserve Bank, is considering replacing its equities clearing and settlement system, CHESS, with DLT. As such, the Reserve Bank may in future become involved with DLT in a regulatory capacity.

 

The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members. This publication is also subject to the AusPayNet Terms of Use and Privacy Policy available on the AusPayNet website.

 

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The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members. This publication is also subject to the AusPayNet Terms of Use and Privacy Policy available on the AusPayNet website.

 

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