The Monetary Authority of Singapore (MAS) has released a new whitepaper that suggests a standard protocol outlining the requirements for using different forms of digital currency, including stablecoins, tokenized bank deposits, and central bank digital currencies (CBDCs).
The whitepaper’s support is provided, according to a press release that went along with it, “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 International Monetary Fund (IMF), Banca d’Italia, Bank of Korea, Amazon, DBS Bank, Onyx by J.P. Morgan, and numerous other business partners contributed to the creation of the whitepaper.
The document contains “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,” according to the press release.
The PBM protocol is designed to be compatible with various ledger technologies and payment methods since the MAS places a high priority on interoperability. As a result, users may access their digital asset holdings via their chosen wallet provider.
The same infrastructure may be utilized for several use cases when there is a common protocol, according to the MAS. Without the requirement for customisation, stakeholders utilizing various wallet providers may transfer digital assets to one another.
The project’s numerous contributors will start running trials to evaluate the use of PBM in various settings when the whitepaper has been published.
As part of a trial project, Amazon, Fazz Financial Group, and Grab Holdings will employ escrow agreements for online retail payments. According to the release, this enables money to be delivered to the merchant only after the client has the things ordered, increasing both sides’ level of confidence.
The use of PBM-based cashback and other incentives will be tested by DBS, Grab, FAZZ, Network for Electronic Transfers (NETS), and United Overseas Bank (UOB) in an effort to enhance customer experiences while lowering frictions faced by retailers, “such as manual reconciliation of sales proceeds and time needed to onboard new sales campaigns.” The PBM whitepaper, according to the MAS, is a continuation of Project Orchid, an ongoing project run by the regulator to “develop the competency and digital infrastructure needed to issue a digital Singapore dollar domestically.”
The whitepaper’s aim 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 intended to act as a reference model to promote platform compatibility.
PBM could be used to manage the risks associated with pre-paid packages, in online commerce to reassure customers and merchants that funds will be transferred when service obligations are fulfilled, in contracts with multiple milestones that must be met, 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 manage the risks associated with pre-paid packages, and more.
According to Sopnendu Mohanty, Chief FinTech Officer at MAS, “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.” More significantly, it has improved the chances that digital money will play a significant role in the future of finance and payments.