The Monetary Authority of Singapore is poised to become the latest central bank to test its own digital currency, which it will use in a trial of a blockchain-driven system for interbank payments.
The "proof-of-concept" project, which also involves the city's stock exchange and eight banks, is aimed at simplifying the payments process and reducing transaction costs, Managing Director Ravi Menon said in a speech last week. It may include cross-border transactions with the participation of another central bank in the future, he said.
"Today, banks have to go through correspondent banks to intermediate these payments. It takes time and adds to cost," Menon said. "This project marks the first step in MAS' exploration of ways to harness the potential of central bank-issued digital currency."
The project is the latest sign that a long-discussed development for the banking industry -- the adoption of blockchain to speed up and simplify interbank deals -- is gaining traction after years of debate and warnings about possible safety breaches.
The MAS plan involves an internally created digital currency. It's a similar approach taken by the Bank of Canada, which said in June it's running experiments on interbank payment systems using blockchain-type technology.
Central banks in China and the U.K. have also been studying the prospects of issuing their digital currencies, which are independent of bitcoin, which is commonly associated with blockchain but whose allure has been tarnished by fraud and money-laundering concerns. UBS Group, Deutsche Bank and Banco Santander have partnered with other firms and a startup called Clearmatics to develop a "utility settlement coin" -- a currency usable within a blockchain and exchangeable between banks.
Singapore's DBS Group Holdings, its two local rivals, HSBC Holdings, Bank of America Corp., JPMorgan Chase, Credit Suisse Group and Bank of Tokyo-Mitsubishi UFJ are the lenders involved in the MAS program, according to a slide presentation for Menon's speech.
The R3 consortium of global financial firms, which is developing blockchain applications for use in financial services including money transfers, record keeping and other back-end functions, is also supporting the effort, Menon said. The MAS said earlier this month it's partnering with R3 on a Singapore-based center to develop blockchain.
Singapore will also create a national "know-your-customer" platform that will help banks avoid redundancy in customer data collection and reduce compliance costs, Menon said. The "basic building block" of that system will be the government's MyInfo service, which collects personal details of Singaporean residents, he said during an event at the Singapore Fintech Festival.
The weeklong festival, organized by the MAS, is part of Singapore's broader effort to position itself as a financial technology center as it competes with other global hubs like London, Hong Kong and New York to attract business from established financial firms and startup ventures.
SundayMonday Business on 11/21/2016