S’pore exploring cross-border digital currency transactions under Ubin+

SINGAPORE – To make cross-border transactions faster and safer, Singapore will work with the central banks of France and Switzerland to use wholesale central bank digital currencies.

The initiative will explore the exchange and settlement of Swiss franc, euro and Singapore dollar wholesale central bank digital currencies (CBDCs).

The three central banks, together with the Bank for International Settlements (BIS) Innovation Hub, will test this with an automated market maker.

An automated market maker enables the exchange and settlement of two or more digital assets to be performed automatically with a smart contract.

The Monetary Authority of Singapore (MAS) will also team up with interbank messaging system Swift to explore different interoperability models.

This is to enable instant cross-border payment and settlement across blockchain and non-blockchain payment systems.

The initiatives fall under Ubin+, which will study business models and governance structures where settlement can be performed atomically. An atomic settlement refers to the instant exchange of two linked assets.

The project also aims to develop technical standards and infrastructure to support the initiative.

Ubin+ will also establish policy guidelines for the connectivity of digital currency infrastructure across borders, said MAS chief Ravi Menon.

Speaking at the Singapore FinTech Festival at the Singapore Expo on Thursday, Mr Menon said the expansion to a global experiment comes on the back of the success of Project Ubin, which started in 2016.

From 2016 to 2020, Project Ubin explored the use of atomic settlement through tokenised assets that can be exchanged simultaneously on a distributed ledger or blockchain.

It demonstrated that banks could pay one another without having to go through MAS, that privacy could be kept even with decentralised netting of payments, and that tokenisation of digital currencies and securities assets allowed final settlement and delivery versus payment (DVP) simultaneously. DVP is a mode of settlement that guarantees the transfer of securities only after payment is made.

Mr Menon said asset tokenisation has transformative potential, not unlike securitisation 50 years ago.

It allows high-value financial and real economy assets to be fractionalised and exchanged over the Internet on a peer-to-peer basis.

Tokenisation of assets also makes it possible for those assets to be traded securely and seamlessly without the need for intermediaries, he said.

“The real value in the crypto industry comes not from speculating in cryptocurrencies but from tokenising assets and placing them on a distributed ledger for use cases that increase economic efficiency or enhance social inclusion,” Mr Menon added.