Monetary Authority of Singapore’s managing director Ravi Menon said there was no urgent case for a retail central bank digital currency in the city-state, underlining that socioeconomic rather than monetary considerations as the key factor.

Not unlike other governments, Singapore has been actively studying the risk and opportunities of introducing a retail central bank digital currency (CBDC) and its conclusion thus far is that there is no urgent case for issuance.

«There are neither strong reasons for or against a retail central bank digital currency (CBDC) in Singapore,» said MAS’ Ravi Menon during a speech at this week’s Singapore Fintech Festival.

Socioeconomic Considerations

According to Menon, there are three key reasons that MAS would issue its own electronic money: to counter rapid displacement of cash, foster an efficient and inclusive payment ecosystem; and to mitigate against the encroachment of privately issued stablecoins or foreign CBDCs.

But he also notes that in the case of Singapore, the use of physical cash is expected to stay, payment inclusion benefits are uncompelling due to high penetration in banking and e-payments, and external digital currency substitutes remain a «remote tail risk». 

«The issuance of a retail CBDC is ultimately a socioeconomic rather than a monetary consideration,» he explained. 

Banking Disintermediation

In addition, Menon also underlined risks to the financial system such as decreased linkages with lenders, though this could be partially mitigated by «sensible safeguards» such as stock and flow caps for placing digital money with the central bank. 

«Retail CBDCs can potentially pose significant risks to monetary and financial stability. There could be some disintermediation of the banks, particularly during stress periods if people can switch deposits into risk-free central bank money at the click of a button,» Menon explained. 

«Even in normal times, if people held a significant portion of their deposits in the form of digital Singapore dollars with MAS, it would considerably reduce our banks' ability to make loans.»

Still Prepping

While there is no current urgency for CBDCs, MAS is nonetheless still preparing for potential issuance whenever it may be necessary in the future.

To this end, it is launching «Project Orchid», an initiative to build the technology infrastructure and technical competencies needed to issue an electronic Singapore dollar with a global challenge that has already attracted more than 300 proposals from over 50 countries to address problem statements posed.

«Moving to a fully cashless society with all money in the form of bank deposits will not make a significant difference to the conduct of our monetary policy,» Menon added. «The question is whether the public is comfortable with holding only bank deposits and whether there is public demand for a state-issued currency that is as safe as cash but in digital form.»