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(Kitco News) - The Monetary Authority of Singapore (MAS) has published a new whitepaper that proposes a common protocol specifying the conditions for the use of various types of digital money, including central bank digital currencies (CBDCs), tokenized bank deposits and stablecoins.
According to a press release that accompanied the whitepaper, the document is supported “by the release of software prototypes that demonstrate the concept of Purpose Bound Money (PBM), which enables senders to specify conditions, such as validity period and types of shops, when making transfers in digital money across different systems.”
The whitepaper was developed in collaboration with the International Monetary Fund (IMF), Banca d’Italia, Bank of Korea, Amazon, DBS Bank, Onyx by J.P. Morgan, and several other industry partners.
Included in the document are “technical specifications that outline the PBM lifecycle from issuance to redemption, and the protocol to interface with digital currencies backing it; and business and operating models for how arrangements could be programmed such that money is transferred only upon fulfillment of service obligations or terms of use,” the release said.
Interoperability is a key focus of the MAS, so the PBM protocol is designed to work with different ledger technologies and forms of money, enabling users to access their digital asset holdings through their preferred wallet provider.
“With a common protocol, the same infrastructure can be used across multiple use cases,” the MAS said. “Stakeholders using different wallet providers can transfer digital assets to one another without the need for customization.”
Following the release of the whitepaper, the next step will be for the various collaborators on the project to begin launching trials to test the usage of PBM in different scenarios.
Amazon, Fazz Financial Group and Grab Holdings will collaborate to pilot a use case involving escrow arrangements for online retail payments. “This allows payment to be released to the merchant only when the customer receives the items purchased, thus providing greater assurance to both parties,” the release said.
DBS, Grab, FAZZ, Network for Electronic Transfers (NETS), and United Overseas Bank (UOB) will be trialing the use of PBM-based cashback and other incentives to improve consumer experiences while reducing frictions faced by merchants, “such as manual reconciliation of sales proceeds and time needed to onboard new sales campaigns.”
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The MAS said the PBM whitepaper is an extension of Project Orchid, an ongoing initiative led by the regulator to “develop the competency and digital infrastructure needed to issue a digital Singapore dollar domestically.”
The goal of the whitepaper is to “encourage greater research among central banks, [financial institutions], and FinTechs, to understand the design considerations in the use of digital money.” It is also meant to serve as a reference model to foster interoperability across different platforms.
Potential uses for PBM include managing the risks associated with pre-paid packages; in online commerce as a way to provide assurance to both merchants and consumers that funds will be transferred when service obligations are met; in contractual agreements that have multiple milestones that need to be attained; in commercial leases where a security deposit is required; in trade finance, where a payment is automatically made upon fulfillment of service obligations; to help provide greater transparency and accountability for donations; and for cross-border payments, where existing policy requirements as conditions can be embedded into PBMs, allowing compliance checks can be automated, which helps reduce the costs and increase efficiency in cross-border payments.
“This collaboration among industry players and policymakers has helped achieve important advances in settlement efficiency, merchant acquisition, and user experience with the use of digital money,” said Sopnendu Mohanty, Chief FinTech Officer at MAS. “More importantly, it has enhanced the prospects for digital money becoming a key component of the future financial and payments landscape.”
