The increasing popularity of digital tokens has raised concerns among central banks worldwide, leading them to explore the concept of a digital version of central bank money. The Monetary Authority of Singapore (MAS) is no exception, and it has been actively studying the potential benefits and risks associated with a digital version of the Singapore dollar (digital SGD). My article published in the Banking and Finance Law Review (volume 39, page 381) delves into the potential impact of a digital SGD on the public’s choices for store of value and conducting payment transactions, the funding model of the banking industry, and the monetary policy operations of MAS. It revisits fundamental topics such as the existing types of official money, bank funding models, central banks’ authority to issue banknotes, and the concept of legal tender while discussing the changes that a digital SGD would bring. The conclusion is that introducing a digital SGD would yield net positive effects, encouraging MAS to modernize its currency system to align with the evolving digital landscape in financial markets.
Since the article aims to clarify the potential impact of retail CBDC on Singapore’s monetary system, the technical aspects of CBDC technology are not central to the main arguments presented in the article. Instead, the focus shifts to issues at the intersection of law and monetary economics. This includes the conceptual design of CBDC, the reasons behind introducing retail CBDC, the effects of a digital SGD on the banking sector, the legal considerations regarding MAS’s authority to issue a digital version of the national currency, and whether this digital SGD could, or even should, be designated as legal tender. Finally, the article then turns to the discussion of monetary policy implications of a retail CBDC model in Singapore.
The article concludes that Singapore would gain from implementing a retail CBDC that would provide universal access to a digital version of the national currency. This positive assessment is based on the belief that the public stands to benefit from this novel public good, ensuring a secure store of value and cashless payment option for all segments of society, without compromising the stable and profitable standing of the banking industry. Although the introduction of CBDC as a safer alternative for store of value might pose a risk of widespread deposit withdrawals from Singapore’s banking sector, the article contends that the banking industry could devise strategies to attract the necessary retail funding. While this funding might no longer be nearly free, it could come at a fair price, compensating retail depositors for the risk inherent in a liability owed by a commercial bank. Moreover, the article asserts that MAS possesses the authority to issue a digital SGD de lege lata. Negative implications on MAS’s pursuit of monetary policy objectives appear unlikely. In the improbable event of such implications arising, the article outlines effective countermeasures that MAS could employ to safeguard its policy goals.
Keywords: Central bank digital currency, Monetary policy objective, Bank funding model, Legal tender , Concept of money
AUTHOR INFORMATION
Christian Hofmann is the Head of Central Banking and Financial Regulation at the Centre for Banking & Finance Law, the Deputy Director of the Centre for Asian Legal Studies and an Associate Professor at the Faculty of Law at the National University of Singapore.
Email: lawch@nus.edu.sg