The Monetary Authority of Singapore (MAS) and Deloitte today published their first report on how the world’s central banks could deploy distributed ledger technology (DLT). The paper outlines a prototype for an Ethereum-based DLT financial ecosystem — starting with a blockchain-based version of its national currency, the Singapore dollar (SGD).
Singapore’s Project Ubin Includes Govt, Major Banks
The report, titled “SGD on Distributed Ledger”, is the first release from “Project Ubin” — a year-old collaboration by MAS (Singapore’s central bank), DLT technology firm R3, and a consortium of big-name banks. (PDF download link)
As well as introducing the concept of DLT, the 44-page paper includes technical documentation and links to source code for a proof-of-concept prototype for a new national currency called “SGD on ledger”.
It’s based in part on Canada’s similar “Project Jasper” which released a DLT feasibility report (PDF) in June 2017. However Singapore’s version differs in the smart contracts it uses to support the model. Project Ubin’s initial prototype is built on a private Ethereum DL, though future versions may use other platforms.
Blockchain SGD Different to Other Digital Money but Equal in Value
The SGD (Singapore dollar) on ledger concept details how DLT-based national currencies are different from other forms of digital central bank money already in existence or development.
Banks may use the digital “coupons” (each of which is backed by an actual SGD unit) to settle interbank debts, but the units will not earn interest and must be “cashed out” of the system to have monetary value.
MAS hopes its research will position Singapore as a leader in DLT for central banks and maintain its status as a major global financial and fintech center.
Many Implications to Consider Before Economy Goes Full Blockchain
Benefits for central banks using DLT are similar to those associated with open cryptocurrencies, such as Bitcoin. Transactions can be fast and peer-to-peer without third-party clearing, irreversible, cheaper, and more transparent.
Obviously there’s still a long way to go before all government and financial institutions migrate their disparate functions to a unified DLT network. The paper notes the now-familiar issues including privacy and security on open ledgers, scalability, identifying participants, dealing with disconnection and downtime, and making it all interoperable.
There are other non-technical implications to consider, like impact on monetary policy and supply, and additional regulatory and risk requirements.
SGD on ledger would represent Asia’s first DLT/blockchain-based national central bank currency. However, the ability to use DLT to perform instant, direct (or “atomic”) cross-border payments is a key goal.
Project Ubin is also exploring such payments with other advanced economies working on similar technologies, specifically Canada and Hong Kong — and potentially Australia, Japan, and India.
Central Banks Should Lead the Way on DLT
The report’s foreword states that central banks should be leaders in developing the next generation of economic networks:
“We believe that central banks like MAS can play a bigger role beyond just providing research funding: collaborative projects such as Project Ubin support the creation of open Intellectual Property and foster collaboration between industry players, creating a vibrant, collaborative, and innovative ecosystem of financial institutions and FinTech companies.”
After the current experiment, Project Ubin will also experiment with fixed income securities trading on the Singapore Exchange (SGX).
Source code and technical documentation for the prototype is released for public access under the Apache License version 2.0. MAS is inviting other companies and researchers to take a look.
Will national economies be entirely blockchain-based in the future? How long will it take? Let’s hear your thoughts in the comments.
Images via Project Ubin, Pixabay