CBDCs Digital assets hold the most promise in pre- and post-trade capital market activities, as well as in cross-border payment and settlement, says Ravi Menon, managing director of Singapore’s Monetary Authority of Singapore (MAS). This was announced by Menon in his keynote speech at the Green Shoots symposium held in Singapore on August 29 and 30, 2022.
At the April 2022 IMF spring sessions, Menon made similar points about the practical applications of a CBDC. Menon stated, “MAS envisions a range of potential use cases for wholesale CBDCs. They can be employed on a distributed ledger in the interbank system to speed up the processing of international payments. MAS has collaborated with the industry and other central banks to test wholesale CBDCs, with positive results. What happens next will be fascinating to observe. Most of the significant use cases will be in wholesale CBDCs, such as in cross-border payments and cross-border trade finance.
Menon brought the attendees of the Green Shoots conference up to date on Singapore’s development of the aforementioned applications for digital assets. Using distributed ledger technology, wholesale settlement networks like Partior (a joint venture between DBS, JP Morgan, and Temasek) are reducing settlement times for international payments and settlements from days to minutes, as stated by Menon.
“In trade finance, networks like Contour – founded by a collection of trade banks – are developing common ledgers with traceability to automate document verification, enabling faster financing choices and cheaper processing cost,” Menon added.
Proponents of wholesale CBDCs claim that they will boost productivity by making securities trading and settlement nearly immediate on the same platform by employing smart contracts. Other experts, though, have suggested that faster settlements would necessitate more cash on hand.
Menon explained how the Singaporean government is investigating the potential of digital assets in financial transactions. For example, “in capital markets, Marketnode — a joint venture between SGX and Temasek — is employing distributed ledger technology to tokenise assets, which decreases the time needed to clear and settle securities transactions from days to mere minutes” (Menon).
Moreover, Menon emphasized the importance of stablecoins operating under clear regulations and having high-quality reserves supporting them if they are to realize their full potential. When asked about the stability of stablecoins, Menon replied, “Many stablecoins lack the ability to keep the promise of stable value.” Stablecoins may be vulnerable to credit, market, and liquidity issues because some of the underlying assets, such commercial papers, may be uninsured.
Menon stated that although the MAS does not currently see a compelling rationale for retail CBDCs in Singapore, they are open to supporting and creating the necessary infrastructure for retail CBDCs should the need arise.